c^ 


I^ 


A  FEW 


FACTS  AND  SUGGESTIONS 


ON 


MONEY,  TRADE,  AND  BANKING. 


J.  H.   WALKER. 

[WOBCESTER,   MASS.] 


BOSTON : 
HOUGHTON,  MIFFLIN  AND  COMPANY. 

UBW  YORK  :    1 1    EAST   SEVENTKENTU    STREET. 


Copyright,  1881, 
By  HOUGHTON,  MIFFLIN  &  CO. 

All  rights  reserved. 


The  Riverside  Press,  Cambridge  : 
Stereotyped  and  Printed  by  H.  0.  Houghton  and  Company. 


>- 


^^ 


CONTENTS. 

PAM 

Intboductiox .5 

CHAPTER  I. 

MUNET .         7 

CHAPTER  n. 
Tbade 15 

CHAPTER    III. 
Function  of  Coin 19 

CHAPTER  IV. 
Capital 22 

CHAPTER  V. 
Borrower  and  Lender 25 

CHAPTER   VI. 
Interest 29 

CHAPTER  VII. 
Bankino  Necessary       ....  ...    33 

CHAPTER    VIII. 
Government  Bonds 35 


383174 


iv  CONTENTS. 

CHAPTER  IX. 
National  Banks '   •       *    38 

CHAPTER  X. 
Banks  in  the  Interest  of  the  Peoflb    ....    44 

CHAPTER    XI. 
Inducement  to  enoaob  in  Bankino 5S 

CHAPTER  Xn. 

PlliCTICAL  WORKING    OF   A  BaNK 68 

CHAPTER  XIII. 
The  Clearing  House «    88 

CHAPTER  XIV. 
Bt  whom  Monet  is  made •       *    6S 

CHAPTER  XV. 
Ihfotemcb  of  Statute  Law        ..»•••    66 

CHAPTER  XVL 

Conclusion 71 

Government  Legal  Tender  Notes 77 

U  S.  Sub-treasury ,        ,  81 

Legislation  needed       ....«•..  87 

APPENDIX. 

BUMMABT  OF   THE  PRINCIPAL  RESTRICTIONS  AND  ReQUIRB- 

MENT8   OF   THE   NATIONAL   BANK    AcT        .  .  .  .93 


INTRODUCTION. 


Every  man  in  the  community  has  now  the  same 
liberty  to  make  and  issue  money,  that  he  has  to 
buy,  sell,  walk,  run,  lift,  or  do  a  dozen  other  things, 

—  no  law  hindering  him.  The  only  restriction  is, 
that  his  money  shall  not  be  made  in  imitation  of 
that  made  by  any  other  man. 

Two  to  three  hundred  millions  of  dollai"s,  in 
money,  are  made  each  day,  doing  the  work  of 
money  for  the  day,  and  are  destroyed  at  night. 

Money  is  coin,  or  any  non-interest  bearing  title  to 
property,  that  can  be  immediately  realized  on,  with 
the  option  of  coin. 

In  what  is  herein  presented,  the  endeavor  is  to 
make  plain  what  MONEY,  TRADE,  and  BANKING 
really  are,  spending  no  time  on  theories,  and  claim- 
ing to  do  nothing  more  than  to  present  existing 
facts  with  reasonable  clearness  and  free  from  all 
technicalities.  There  is  no  other  department  of 
knowledge  in  which  theories  are  of  so  litth^  value, 

—  where  experience  should  so  exclusively  be  teacher 


6  INTRODUCTION. 

and  master.  In  finance,  as  in  nearly  all  other 
things,  the  truth  lies  on  the  surface.  If  it  has  been 
missed  it  is  because  we  have  ploughed  too  deep  for 
it.  We  have  missed  it  because  it  was  so  near  and 
so  simple ;  we  rejected  it  when  we  saw  it.  Further- 
more, there  is  nothing  in  these  questions  that  a 
plain  man  may  not  fully  understand.  In.  order  to 
fairly  cover  the  ground  and  make  the  statements 
reasonably  complete,  it  will  be  necessary  to  stat^ 
formally,  many  familiar  things. 


mo:n'et,  teade,  and  baitking. 


CHAPTER  I. 

MONET. 

The  word  money  conveys  to  the  mind  of  the 
merchant  the  idea  of  everything  in  the  shape  of  an 
obligation  of  one  person  or  corporation  upon  an- 
other, which  a  bank  will  take  for  its  face  value.  It 
is  true  that  wage-workers  and  small  farmers  under- 
stand money  to  mean  only  coin  and  bank-notes ; 
but  only  about  two  thousand  millions  of  dollars  are 
annually  paid  to  wage-workers  and  small  farmers, 
while  thirty  thousand  millions  of  dollars  of  the 
annual  exchanges  of  the  property  of  the  country, 
made  by  merchants  and  traders,  are  paid  for  with 
other  forms  of  money.  The  farmer  and  wage- 
worker  use  the  words  money  or  CASH  to  convey 
the  idea  of  coin  or  bank-notes,  because  only  coin 
and  bank-notes  do  for  them  the  work  of  money. 

The  meaning  of  the  words  money  or  ca%h  to  all 
others  also  includes  everything  that  does  the  work 
of  money,  which  besides  coin  and  bank-notes  are 
cashiers'  checks,  checks,  drafts,  bills   of  exchange, 


8  MONEY,   TRADE,  AND  BANKING. 

etc.,  each  of  which,  excepting  coin,  are  titles  to 
property.  The  titles  to  property  that  annually 
change  hands  probably  exceed  seventy  billions  of 
dollars,  to  pass  which  scarcely  three  billions  of  dol- 
lars of  currency  and  coin  change  hands. 

Coins  are  pieces  of  gold  or  silver,  stamped  by 
the  government  for  the  purpose  of  indicating  their 
weight  and  fineness,  and  for  that  purpose  only. 
Stamping  them  adds,  and  can  add,  nothing  to  the 
purchasing  power  of  gold  or  silver  (excepting  for 
brief  periods  and  under  exceptional  conditions). 
This  fact  is  very  clearly  stated  in  the  law  author- 
izing the  issue  of  United  States  bonds  and  the 
redemption  of  the  greenbacks,  passed  March  18, 
1869,  and  July  14,  1870,  which  says,  that  they 
shall  be  paid  "  in  coin  or  its  equivalent  of  the 
(then)  present  standard  value "  (that  is  to  say, 
coin  of  the  same  weight  and  fineness),  which  means 
so  many  pounds  of  gold  ^  of  a  given  fineness,  pre- 
cisely as  we  specify  wheat  of  a  given  quality  and 
number  of  bushels,  in  a  contract  for  the  delivery  of 
wheat. 

1  All  admit  gold  to  be  the  standard  of  value;  some  claim  that 
silver  is  equally  so.  As  I  do  not  wish  to  burden  this  discussion 
with  any  question  of  a  double  standard,  each  person  may  under- 
Btand  gold  to  include  silver,  or  gold  alone,  according  to  his  own 
opinion  of  what  should  constitute  the  standard  of  value.  But  in  de- 
ciding the  question  we  must  remember  that,  in  the  light  of  reason 
and  all  the  experience  of  the  past,  gold  and  silver  cannot  both  be 
the  standard  of  value  at  the  same  time,  excepting  for  the  brief 
period  their  lines  of  fluctuation  in  value  cross  each  other.  When 
a  given  weight  of  two  metals  is  mentioned  as  the  standard  of  value^ 
the  debtor  class  always  fix  on  which  it  shall  be,  and  iuvariablj 
choose  the  cheaper  one. 


MONEY.  9 

That  the  government  coinage  stamp  adds  noth- 
ing to  the  value,  or  purchasing  power,  of  gold,  is 
further  shown  by  the  fact  that  there  is  no  merchant 
or  banker  who  will  not  take  gold,  guaranteed  to  be 
of  the  same  weight  and  fineness  as  $1,000  of  gold 
coin,  for  $1,000  worth  of  property,  as  readily  as 
the  gold  coin.  Gold,  having  intrinsic  value,  is 
money,  and  more :  it  is  property,  capital ;  all  other 
forms  of  money  are  titles  to  property.  Of  all  the 
forms  of  money  now  used,  gold  only  has  the  power 
in  and  of  itself  to  pay  debts,  because  it  only  is 
capital. 

When  coin  passes  from  one  person  to  another, 
actual  property,  or  capital,  passes,  and  the  transac- 
tion is  final  in  its  nature ;  that  is  to  say,  there  is 
no  other  thing  to  be  done  by  the  receiver  in  order 
to  secure  possession  of  actual  property.  By  the 
transfer  of  nothing  else,  short  of  the  passage  of  the 
final  papers  changing  absolutely  the  residence  of 
the  title  of  actual  property  (and  giving  possession 
of  the  property)  from  one  person  to  another,  is  the 
transaction  final.  There  are  many  forms  of  trans- 
fers of  titles^    to  property  in    common  use,  all  of 

1  The  word  claim,  as  commonly  used,  conveys  the  idea  of  a  dis- 
puted title  to  property.  A  title  is  commonly  understood  to  mean  a 
paper  which  securely  vests  the  property  in  its  holder,  —  an  admitted 
title.  A  check,  bill  of  exchange,  etc.,  is  cither  a  claim  upon  the 
property  of  the  maker  (or  indorser)  for  the  amount  named  therein, 
or  it  is  a  title  to  BO  much  of  his  jjropcrty.  Perhaps  to  call  any  one 
of  them  a  claim  would  be  more  accurate  as  a  legal  term  ;  but  the 
universal  and  unvarying  practice  of  business  men  to  surrender 
promptly,  to  the  holder,  the  amount  of  property  named  in  any  one 
»f  them,  justifies  the  use  of  the  word  title,  because  it  icore  uccu 
rately  describes  the  thing. 


10  MONEY,   TRADE,  AND  BANKING. 

which  do  the  work  of  money  and  are  counted  in 
commercial  transactions  and  accounts  as  CASH  or 
MONEY,  as  before  stated,  each  of  which  is  indis- 
pensable in  its  place. 

The  titles  to  property,  which  are  money,  are  :  — 
First.    Bank-notes,  which  are  forms  of  transfers 
of  the  property  of  banks,  and  are  necessary  to  the 
affairs  of  e very-day  life.     They  require  no  act  on 
the  part  of  any  one  who  uses  them  to  make  them 
complete.    They  are  as  readily  received  from  stran- 
gers as  acquaintances.     They  are,  in  essence,  the 
checks,  drafts,  bills  of  exchange,  etc.,  of  all  the  men 
whose  business  is  not  large  enough  to  require  the 
direct  assistance  of  the  banker,  and  they  are  noth- 
ing  more.     They  are   for   use   in  transactions   so 
small  that  the  other  forms  of  money  are  not  practi- 
cable or  desirable.     They  are   nearly   identical  in 
form,   and  perfectly    identical   in   substance,    with 
checks,  drafts,  etc.,  a  more  convenient  form,  for  the 
persons  using  them,  of  the  same  thing.    The  law  of 
the    land   recognizes    no   more    value  or  power  in 
them  than  in  any  ordinary  demand  note  of  one  in- 
dividual against  another.     No  one  can  compel  an- 
other to  accept  them  in  liquidation  of  a  debt,  any 
more  than  he  can  the  demand  note  of  an  individual. 
They  are  the  same  in  form  and  substance  as  an  or- 
dinary demand  note,  excepting  that  they  are  made 
payable  to  any  one  in  possession  of  them,  instead  of 
to  the  order  of  some  individual   named  in  them. 
The  law  recognizes  the  power  of  nothing  to  dis- 
charge a  debt,  excepting  a  specified  kind  of  prop. 


MONEY.  11 

erty,  and  of  the  amount  named  in  the  paper  ac- 
knowledging the  debt.  The  law  sajs  the  term 
"  dollar  "  shall  mean  a  given  weight  and  fineness 
of  gold.  In  fact,  custom,  or  rather  a  universal  law, 
as  certain  as  any  law  of  nature  and  recognized  and 
acted  upon  as  such  the  -world  over,  has  fixed  the 
conditions  of  payment  of  any  and  every  debt  to  be 
the  transfer  of  a  given  weight  and  fineness  of  gold 
or  silver.  There  is  no  exception  anywhere,  either 
among  civilized  or  barbarous  peoples.  If  any  man 
accepts  anything  other  than  gold  or  silver,  it  is  by 
his  free  consent,  aside  from  the  agreement  made  at 
the  time  the  debt  was  contracted.  This  is  the  uni- 
versal law  and  the  universal  custom. 

Second.  Cashiers'  checks,  which  transfer,  by  the 
bank  itself,  the  title  to  the  property  of  the  bank, 
to  the  amount  named  in  the  check,  to  the  person 
or  corporation  named  therein. 

Third.  Checks,  which  transfer  the  title  of  the 
individual  making  them,  to  the  amount  of  property 
named  therein,  which  he  owns,  that  is  in  the  pos- 
session of  the  bank  upon  which  the  check  is  made, 
to  the  person  or  corporation  named  in  the  check. 

Fourth.  Drafts,  which  are  means  of  transferring 
the  title  of  property  from  one  individual  or  corpo- 
ration to  another,  through  the  assistance  of  a  bank. 

Fifth.  Bills  of  exchange,  which  transfer  the  title 
to  the  property  of  a  banker  in  one  country  to  an 
individual  or  banker  in  another  country. 

Accepting  the  declaration  that  "  money  is  what 
money  does  "  (which  is  the  only  practical  defini- 


12  MONEY,  TRADE,  AND  BANKING. 

tion  of  money),  these  five  forms,  by  which  the  titles 
to  property  are  exchanged,  are  preeminently  money. 
Coin  is  scarcely  ever  passed,  and  bank-notes  but 
Beldom. 

With  these  five  simple  forms  of  money  are  all 
the  exchanges  of  the  ownership  of  property  be- 
tween individuals  and  corporations  made  through- 
out the  world,  —  exchanges  so  vast  in  the  aggre- 
gate that  they  are  beyond  the  comprehension  of 
man.  These  forms  of  money  are  so  simple  that 
any  school-boy  can  make  them.  They  are  as  sim- 
ple as  the  alphabet.  They  are  the  alphabet,  or 
rather  the  language,  of  trade  and  commerce  every- 
where. They  are  as  necessary  and  as  indestruc- 
tible as  ordinary  human  language.  They  are  as 
necessary  to  the  vast  exchanges  of  the  world  as  are 
the  canals,  the  steamboats,  and  the  railways.  They 
have  grown  up  with,  and  are  a  part  of,  the  means 
of  making  the  actual  exchanges  of  the  products  of 
the  world.  They  are  the  concrete  forms  of  the 
unwritten  laws  of  trade, — laws  as  inexorable  as 
are  any  of  the  laws  of  nature.  They  are  as  surely 
the  result  of  ages  of  abrasion  and  accumulation  a9 
is  the  soil  upon  which  we  tread.  Their  money 
function  has  grown  up  vdth  civilization,  and  in  all 
matters  pertaining  to  finance  they  are  the  exponent 
and  vehicle  of  civilization.  They  are  as  indepen- 
dent of  national  boundaries  and  legislation  as  is 
international  law. 

Of  the  six  enumerated  forms  of  money,  as  has 
been  before  stated,  coin  is  the  only  one  that  can  do 


MONEY.  13 

more  than  to  transfer  the  title  to  property  from  one 
person  to  another.  Not  one  of  the  others  can  extin- 
guish debt.  Notwithstanding  this  fact  the  universal 
practice  is  for  each  man  to  take,  in  exchange  for  his 
property,  some  one  of  these  titles  to  the  property 
of  some  other  man.  Every  man  takes  all  the  titles 
to  the  property  of  every  other  man  that  he  receives, 
and  deposits  them  in  a  bank,  and  accepts  in  their 
place  a  title  to  the  property  of  the  bank,  to  an 
equal  amount.  This  title  to  the  property  of  the 
bank  is  always  transferred  by  the  individual  having 
it  to  the  same  or  some  other  bank  in  exchange  for 
some  title  to  his  own  propert}',  which  he  has  before 
given ;  and  as  each  bank,  the  world  over,  sends 
all  the  money  titles,  or  its  equivalent,  to  the  prop- 
erty it  buys,  not  cancelled  at  its  own  counter,  to 
the  "  clearing  house,"  every  money  title  issued  ulti- 
mately finds  its  way  there,  and  is  there  cancelled 
and  destroyed,  —  meeting  there  the  equivalent 
which  each  merchant  is  obliged  to  give  some  one, 
for  each  money  title  to  his  property  which  any  one 
accepts  from  him.  After  any  bank  or  clearing  house 
has  exhausted  all  the  titles  to  the  property  of  others 
which  it  has,  in  matching  the  titles  it  has  issued,  to 
its  own  property  (which  are  presented  to  it),  it 
must  then  give  to  every  man  who  presents  any  fur- 
ther title  to  its  property,  gold  to  satisfy  it.  The 
fact  that  gold  settles  the  final  balance  is  equivalent 
to  its  being  actually  passed  from  one  man  to  another 
in  paying  every  debt  in  the  country,  to  the  exclu- 
sion of  every  other  form  of  money,  because  the  re- 


14  MONEY,   TRADE,  AND  BANKING. 

suit  is  precisely  the  same  as  it  would  be  if  gold  act- 
ually passed  in  each  transaction.  By  this  means 
it  actually  touches  and  measures  the  value  of  every 
commodity,  in  every  trade,  from  the  selling  of  a 
dozen  of  eggs  to  the  funding  of  hundreds  of  mill- 
ions of  the  public  debt.  Thus  money  grows  out 
of  trade,  and  is  a  part  of  it.  It  has  no  existence 
aside  from  it,  and  cannot  be  described  without  in- 
cluding trade. 


CHAPTER   II. 

TRADE. 

Evert  form  of  money,  excepting  coin,  repre- 
sents barter,  and  that  only.  Taking  any  other  of 
the  many  forms  of  money  is  taking  a  title  to  the 
property  of  its  maker  to  the  value  named  in  the 
bank-bill,  cashier's  check,  check,  draft,  or  bill  of 
exchange,  etc.,  as  the  case  may  be,  in  coin,  and 
nothing  more.  In  exchange  for  them,  the  person 
receiving  them  gives  either  a  like  amount  of  his 
property,  or  a  title  to  it,  or  a  title  which  he  has  to 
the  property  of  some  other  person  or  banker.  By 
means  of  these  devices,  primitive  barter  becomes 
modern  trade,  but  is  not  changed  in  its  substance. 
Each  individual  uses  these  devices  to  accurately  di- 
vide and  subdivide  the  unsecured  title  to  his  aggre- 
gate property  into  such  portions  as  he  wishes  to 
exchange  for  the  property  of  his  neighbor.  The 
crudest  form  of  barter  and  modern  trade  are  essen- 
tially the  same.  The  only  difference  being  in  the 
number  of  persons  who  take  part  in  a  given  trans- 
action, the  facility  and  accuracy  with  which  projD- 
erty  is  divided  and  moved,  and  the  accuracy  with 
which  values  arc  computed.  There  can  be  no  trade 
other  than  tlie  exchanging  of  property  for  property, 


16  MONEY,   TRADE,  AND  BANKING. 

unless  one  person  or  class  is  content  to  maintain 
trade  with  another  by  exchanging  something  for 
nothing.  The  difference  between  the  old  and  the 
new  is  development,  not  substitution.  It  is  not 
abandoning  the  stage-coach  and  turnpike  for  the 
railway  and  railway  cars.  It  is  rather  the  develop- 
ment of  the  original  loom  into  the  loom  that 
weaves  the  fancy  cassimere  of  to-day.  It  is  a  loom 
still,  retaining  all  its  original  features.  The  differ- 
ence is  in  the  devices  for  dividing  the  property  of 
the  purchaser  into  the  exact  amount  tbat  the  party 
selling  demands  for  the  thing  sold,  —  the  numb'et 
of  persons  uniting  to  do  it,  and  the  unanimous  as- 
sent and  assistance  of  all  in  consummating  each 
transaction. 

Besides  the  forms  of  exchangeable  titles  to  the 
property  of  their  makers  and  indorsers  heretofore 
mentioned,  namely :  Bank-notes,  cashiers'  checks, 
checks,  drafts,  and  bills  of  exchange,  which  by 
common  consent  are  money,  there  are  — 

First.  Individual  and  corporate  titles  to  a  speci- 
fied amount  of  the  property  of  their  maker,  called 
bankable  notes,  payable  in  the  near  future,  at  a 
time  and  place  named  therein. 

Second.  Individual  or  corporate  titles  to  a  speci- 
fied amount  of  the  property  of  their  makers,  called 
demand  notes,  payable  on  the  demand  of  tbe  party 
owning  them. 

Third.  Book  accounts,  which  in  the  country 
store  represent  primitive  barter,  in  the  settlement 
of   which  very   little  use  is  made  of  any  of  the 


TRADE.  17 

devices  for  transferring  titles  to  property,  before 
described.  The  products  of  the  farm  or  shop  are 
directly  exchanged  for  the  goods  of  the  trader. 

Fourth.  Stocks,  each  share  of  which  is  the  title 
of  the  holder  to  that  proportion  of  the  whole  prop- 
erty, described  therein,  which  is  owned  by  him. 

Fifth.  Bonds  and  mortgage  notes  of  individuals 
or  corporations  secured  by  conditional  bills  of  sale 
of  certain  specified  property,  described  therein. 

The  passage  of  the  title  to  a  mortgage  bond  or 
note  is  always  associated  in  our  minds  with  the 
passage  of  the  title  to  the  property  described  in  the 
mortgage  ;  but,  as  a  matter  of  fact,  both  in  custom 
and  law,  the  right  of  the  owner  of  a  mortgage  bond 
or  note  to  the  property  specified  in  the  mortgage, 
is  no  more  than  is  the  right  of  the  holder  of  any 
one  of  the  other  nine  forms  of  titles  to  so  much  of 
the  property  of  the  maker  thereof  as  will  fully  sat* 
isfy  the  obligation.  The  only  difference  is,  that  the 
owner  of  the  mortgage  bond  or  note  has  a  prior 
riglit  to  tlie  property  mentioned  in  the  mortgage. 
The  holder  of  any  of  the  other  forms  of  obligation 
can  levy  on  any  kind  or  portion  of  the  property  of 
the  maker  not  pledged  by  mortgage.  To  satisfy  the 
owner  of  any  one  of  the  obligations  the  law  re- 
quires the  maker  to  deliver  coin,  and  if  the  holder 
accepts  any  other  form  of  money  he  simply  ex- 
changes his  obligation  against  one  party  for  an  ob- 
ligation against  another  party.  Every  one  of  the 
obligations  namc'd  must,  of  necessity,  represent 
property.     The  moment  they  cease  to  do  that  they 

2 


18  MONEY,   TRADE,  AND  BANKING. 

are  valueless.  The  theory  and  fact  is,  that  each 
one  of  them  specifies  on  its  face  the  day  on  which 
the  maker  will  deliver  to  the  holder  property  of  the 
value  named  therein,  in  the  performance  of  which 
promise  the  obligation  dies. 


CHAPTER  III. 

FUNCTION  OP  COIN. 

Coin,  which  is  property  and  not  an  obligation, 
as  are  the  other  forms  of  money,  is  never  passed,  so 
long  as  the  holder  of  an  obligation  desires  or  is  will- 
ing to  accept  any  form  of  capital  other  than  coin ; 
and  as  no  income  can  be  derived  from  coin,  there  is 
no  inducement  under  ordinary  circumstances  for 
the  creditor  to  demand  it  of  the  debtor,  or  for  an 
individual  receiving  it  to  retain  it  in  his  possession. 
Nothing  is  properly  called  money  which  affords  an 
income.  It  is  fatal  to  the  monetary  function  of  an 
obligation  to  contain  any  inducement  for  an  in- 
dividual to  keep  it  as  an  investment.  Money  is  a 
title  to  property,  from  which  no  income  is  or  can  be 
derived,  that  can  be  immediately  realized  on,  with 
the  option  of  gold. 

The  only  reason  why  banks  hold,  or  should  be 
required  to  hold  any  gold,  is  not  because  it  is 
money,  but  because  it  is  property,  —  property  be- 
cause of  its  intrinsic  value,  in  and  of  itself,  acknowl- 
edged as  such  the  world  over.  The  sphere  of  gold 
in  the  system  of  exchange  is  purely  that  of  property 
used  to  settle  the  final  balance,  not  of  money,  — 
understanding  money  to  mean  purely  a  circulating 


20  MONEY,  TRADE,  AND  BANKING. 

medium.  Gold  thereby  becomes  the  measure  of 
the  value  of  every  other  kind  of  property.  The 
monetary  system  of  the  civilized  world  treats  gold 
as  the  property  by  which  the  value  of  all  other 
property  is  measured.  It  measures  it  as  gold  prop- 
erty.^  not  as  money,  and  irrespective  of  the  pieces 
into  which  it  is  divided,  or  the  stamp  they  bear. 
We  actually  measure  the  value  of  any  given  thing 
by  it,  by  determining  how  much  weight  of  gold  is 
demanded  in  exchange  for  the  thing.  Not  by  a 
process  of  reasoning,  but  by  actually  making  the 
exchange.  The  ratio  of  that  exchange  fixes  the 
price,  in  gold,  of  the  thing  exchanged  for  it,  until 
another  like  exchange  is  made  at  a  different  ratio. 
This  is  accomplished  by  the  banks.  When  the 
titles  to  the  property  of  others,  received  by  any 
bank  on  any  day,  are  less  in  amount  than  the  titles 
to  its  property  which  it  is  called  upon  to  deliver  to 
others,  the  difference  is  immediately  settled  by  the 
delivery  of  coin. 

The  law  requires  coin  to  be  passed  in  every 
transaction,  and  as  long  as  the  final  balance  is  paid 
in  coin,  it  is  practically  a  perfect  and  literal  com- 
pliance with  the  law.  Coin  measures  the  value  of 
every  article  exchanged  until  the  final  exchange 
when  coin  itself  passes  in  liquidation  of  a  title,  as 
truly  as  though  it  passed  in  every  transaction  ;  be- 
cause the  final  result  is  precisely  the  same  as  though 
coin  itself  passed  in  each  transaction.  Thus  it 
really  and  certainly  measures  all  values.  No  one 
thinks  of  questioning   the  fact  that  the   price  at 


FUNCTION  OF  COIN.  21 

which  the  surplus  of  any  particular  brand  of  flour 
is  sold  in  England  for  gold  fixes  its  price  in  gold 
here.  So  with  every  other  article  a  surplus  of 
which  is  sold  in  Europe  for  gold.  The  millions 
worth  of  the  same  property  exchanged  here  is 
every  dollar  of  it  exchanged  on  the  basis  of  its  gold 
value  there.  Gold  as  really  measures  the  value  of 
each  thing  exchanged  as  though  it  was  passed  by 
the  buyer  to  the  seller,  for  all  the  millions  at  which 
the  whole  is  valued,  every  time  a  purchase  is  made. 
So  long  as  the  banks  are  ready  to  pay  gold  to 
any  one  who  has  a  title  to  any  of  their  property, 
and  demands  gold  in  payment,  and  do  actually  pay 
it  in  settlement  of  the  final  balance  against  them, 
gold  is  practically  present  and  does  its  office  in 
every  purchase  and  sale  that  is  made  in  the  land. 


CHAPTER  IV. 

CAPITAL. 

Many  terms  in  common  use  are  technically  fai 
from  accurate,  and  those  of  trade  are  no  exception. 
We  say  the  sun  rises  and  sets,  when  we  mean  that 
the  earth  revolves.  We  say  we  wish  we  had  more 
money,  when  we  mean  that  we  want  more  capital. 
We  do  not  long  for  titles  to  capital,  but  for  capital 
itself.  Men  very  rarely  borrow  money,  they  borrow 
capital.  A.  has  $50,000  in  capital,  all  of  which  he 
uses  himself,  doing  a  business  of  1500,000  a  year, 
but  is  at  no  time,  for  twenty-four  hours,  in  actual 
possession  of  $100  in  bank-bills  or  coin.  B.  has 
$100,000  in  capital,  $50,000  of  which  he  uses  him- 
self, the  other  $50,000  he  loans  to  his  neighbors. 
When  B.  loans  C.  any  of  his  capital,  C.  receives 
from  B.  a  title  to  just  that  portion  of  the  $50,000 
which  he  borrows  of  B.,  say  $10,000,  and  calls  it 
money.  C.  immediately  exchanges  this  $10,000 
title  to  capital  for  $10,000  worth  of  any  of  the 
myriad  forms  of  property  he  most  desires  to  have. 
C.  has  parted  with  his  money ^  but  Tie  still  has  ex- 
actly what  he  desired  to  have,  and  borrowed  of  B., 
namely,  capital.  B.  has  $10,000  less  capital  than 
before  he  loaned  $10,000  to  C,  and  has  in  its  place 
a  title  to  $10,000  of  C.'s  aggregate  property.     C. 


CAPITAL.  23 

has  $10,000  more  capital  than  before  he  borrowed 
of  B.  The  papers  that  passed  from  B.  to  C,  called 
money,  were  no  more  to  the  transaction  than  is  the 
stick  over  the  shoulder  of  the  miner  to  the  gold  he 
carries  on  it,  the  jewel  box  to  a  lady's  jewels,  the 
basket  used  in  gathering  the  crop,  or  the  wagon 
that  takes  it  to  market,  to  the  crop.  They  carry 
property,  the  piece  or  pieces  of  paper  carried  the 
capital  that  passed  from  B.  to  C. 

While  writing  the  above  my  eye  fell  upon  the 
following  newspaper  paragraph  :  — 

"  The  New  York  makes  neat  definitions :  '  Mr. 

Longfellow  can  take  a  worthless  sheet  of  paper,  and  by 
writing  a  poem  on  it  make  it  worth  $50.  That 's  genius. 
Mr.  Vanderbilt  can  take  a  sheet  of  paper,  and  by  writ- 
ing fewer  words  on  it  can  make  it  worth  $50,000,000. 
That 's  capital.' " 

If  this  paragraph  means  anything,  it  means  that 
the  value  of  the  worthless  paper  was  made  $50  by 
the  creative  power  of  Longfellow,  and  $50,000,000 
by  the  creative  power  of  Vanderbilt.  That  is  to 
say,  it  declares  that  genius  can,  by  its  inherent 
power,  add  to  the  capital  of  the  world  the  sum  of 

),  by  making  a  worthless  piece  of  paper  worth 

),  and  a  capitalist  can,  by  his  power  as  a  capital- 
ist, add  $50,000,000  to  the  wealth  of  the  world,  by 
a  few  strokes  of  his  pen  upon  a  worthless  piece  of 
paper. 

What  Longfellow  can  do  is  to  give  us  the  re- 
sults of  a  long  life  of  application  to  his  divine  pur- 
suit, in  a  poem  that  represents  and  is  the  result  of 


24  MONEY,   TRADE,  AND  BANKING. 

labor,  as  much  as  gold  dug  from  the  mine,  wheat 
raised  upon  the  farm,  useful  things  made  from 
worthless  wood,  or  beautiful  vases  from  dull  clay. 
The  paper  upon  which  it  is  written  has  no  more 
connection  with  it  than  the  spade  of  the  gold-dig- 
ger, the  plough  of  the  farmer,  the  tools  of  the 
wood-worker,  or  the  wheel  of  the  potter. 

What  Vanderbilt  can  do  is  to  give  to  another  a 
title  to  $50,000,000— of  his  capital.  When  the 
person  to  whom  it  is  given  presents  his  title  to,  and 
takes  possession  of  the  $50,000,000  —  of  property, 
Vanderbilt  has  $50,000,000  less  capital,  and  the 
person  receiving  it  $50,000,000  more  than  before. 
So  with  all  money  (except  coin).  It  has  no  value 
in  itself.  It  adds  nothing  to  the  capital  of  the 
world.  It  purports  to  be  and  is  only  a  title  to 
property,  —  a  convenient  device  for  transferring 
the  ownership  of  property. 


CHAPTER  V. 

BOEEOWER  AND   LENDER. 

The  man  who  loans  capital  to  another,  neces- 
sarily becomes  the  partner  of  the  borrower  in  the 
business  in  which  the  borrower  uses  the  capital 
borrowed.  Whatever  term  is  used  to  describe  the 
compensation  which  the  lender  receives  from  the 
borrower  for  the  use  of  his  capital,  whether  it  be 
premium,  interest,  rent,  or  profits,  they  all  mean 
the  same  thing,  namely,  that  the  lender  is  to  re- 
ceive a  part  of  its  increase  as  capital,  while  it  is  in 
the  hands  of  the  borrower.  This  does  not  mean 
increase  of  the  capital  unaided  by  the  endeavor  of 
the  borrower.  Capital  becomes  such  by  being 
united  to  man's  skill  and  intelligence.  There  is  no 
form  of  capital  that  can  exist  for  a  moment,  as 
capital,  after  man's  vivifying  power  is  withdrawn. 
It  thereby  loses  its  character  as  capital  and  be- 
comes as  the  rocks  and  as  the  sands  of  the  desert. 

What  would  New  York  be,  if  to-night  every 
human  being  should  leave  it  and  all  its  wealth, 
never  to  return?  Its  vast  wealth  would  be  as 
nothing.  Though  it  should  never  decay,  it  would, 
as  capital,  be  as  though  its  surrounding  waters  had 
swallowed  it  up  forever. 


26  MONEY,   TRADE,  AND  BANKING. 

The  necessities,  the  comforts,  the  luxuries,  the 
innumerable  advantages  of  every  kind  secured  to 
the  wage-worker  of  to-day,  in  the  form  of  the 
compensation  he  receives  from  his  employer,  come 
very  largely  from  the  advantages  furnished  to 
this  generation  by  the  wealth  accumulated  by  the 
generations  that  have  preceded  it.  The  difference 
between  the  condition  of  the  barbarian  and  the 
average  wage-worker  of  to-day  (who  is  temperate, 
industrious,  and  frugal)  is  the  measure  of  what  the 
wage-worker  daily  receives  from  capital  accumu- 
lated before  his  day.  Only  a  modicum  of  the  actual 
benefits  of  capital  are  exclusively  enjoyed  by  its 
owners,  or  are  paid  by  the  borrower  to  the  lender 
for  its  use.  The  great  bulk  of  its  earnings  are 
commonly  enjoyed  by  all. 

In  speaking  of  the  natural  increase  of  capital  we 
include  the  power  that  vitalizes  it.  The  terms 
commonly  used  to  describe  the  compensation  which 
the  lender  receives  tend  to  confuse  the  mind.  The 
one  word  which  conveys  the  most  correct  idea  is 
rent. 

A  man  always  borrows  something  of  intrinsic 
value.  What  he  borrows  is  not. a  piece  of  paper, 
whatever  may  be  on  it,  but  a  farm,  a  house,  a  fac- 
.  ory,  or  a  part  of  them ;  a  store,  a  mine,  or  goods. 
No  man  can  borrow  or  lend  anything  else.  The 
borrower  gets  from  the  lender  what  puts  him  in 
possession  of  the  thing  he  seeks,  and  it  must  be 
some  one  of  these  things.  Whatever  becomes  of 
the  piece  of  paper  which  he  took  from  the  hands  of 


BORROWER  A\D  LENDER.  27 

the  lender,  or  however  soon  it  disappears,  the  bor- 
rower has  the  real  thing  borrowed,  until  he  returns 
it  or  its  equivalent  to  the  lender.  The  inducement 
to  the  lender  to  part  wuth  his  capital  for  a  time  is 
the  belief  that  the  borrower  can  do  better  with  it 
for  him  than  he  can  do  for  himself.  The  induce- 
ment to  the  borrower  is  the  belief  that  the  increase 
on  the  capital  borrowed  will  be  more  than  the  rent 
for  it  which  is  demanded  by  the  lender. 

Any  attempt  by  legislation  to  interfere  with  the 
buying,  selling,  or  renting  of  farms,  houses,  fac- 
tories, stores,  or  mines,  is  now  never  suggested  ex- 
cepting to  secure  justice  to  the  weak.  It  has  been 
proved  by  a  thousand  trials,  tliat  any  interference 
by  legislation  with  the  price  at  which  any  goods 
shall  be  sold,  invariably  increases  their  cost  to  the 
consumer,  and  it  is  now  so  plain  that  no  one  pro- 
poses it.  But  it  is  equally  true  of  all  property. 
Any  one  who  borrows  the  capital  to  pay  for  half 
of  his  farm  is  joint  owner  and  partner  with  the 
lender  —  the  lender  getting  that  share  of  the  profits 
of  the  farm  agreed  upon  as  the  rental  for  his  half, 
until  the  borrower  buys  out  his  half  at  the  price 
agreed  upon ;  or  failing  to  keep  his  agreement 
jeopardizes  his  ownership  in  the  balance,  precisely 
as  do  the  partners  in  any  other  business.  So  with 
the  joint  ownership  in  a  house.  One  man  holds 
the  titles  and  assumes  all  the  chances  of  both  loss 
and  gain  on  the  whole  house,  paying  for  only  lialf  ; 
another  pays  for  the  other  half  with  a  conditicmal 
ownership  with  a  fixed  rental  for  his  half  of   the 


28  MONEY,   TRADE,  AND  BANKING. 

house  (his  capital  loaned),  on  which  he  has  no 
chance  of  gain  over  the  rental,  and  is  guaranteed 
against  loss. 

Selling  goods  by  the  merchant,  the  price  for 
which  is  to  be  paid  on  a  future  day,  or  loaning 
capital  by  a  bank  or  by  an  individual  to  a  trader 
or  manufacturer,  is  taking  a  part  ownership  in  his 
stock.  The  rental  on  the  part  owned  by  the  mer- 
chant is  called  profit.  The  rental  for  the  part 
owned  by  the  banker  or  money  lender  is  called  in- 
terest^ but  the  terms,  profit,  interest,  and  rent,  mean 
the  same  thing. 


CHAPTER  VI. 

INTEREST. 

There  is  no  more  beneficent  law  of  finance  than 
that  requiring  the  payment  of  rent  for  the  use  of 
capital.  Abolishing  interest  would  be  the  death  of 
enterprise.  By  the  rental  paid  for  the  use  of  cap- 
ital, capital  is  put  into  the  hands  of  every  man  who 
is  believed  by  those  who  have  accumulated  it  to 
have  the  skill  to  keep  it  safely  and  use  it  wisely. 
Every  man  who  loans  his  capital  to  another  is  in- 
fluenced in  the  rent  he  demands  for  it  by  three 
considerations  :  First,  its  security;  second,  the 
length  of  time  on  which  the  loan  is  made ;  third, 
the  amount  loaned  ;  the*  lowest  rental  for  capital 
being  received  on  loans  the  most  perfectly  secured, 
for  the  longest  time,  and  the  largest  amount, 
these  considerations  governing  in  the  order  named. 
The  highest  rental  is  paid  where  the  greatest  risk 
is  taken,  the  time  is  shortest,  and  the  amount  the 
Bmallest. 

The  high  rate  of  interest  paid  for  one  day's  loan 
of  capital  in  the  New  York  Stock  Exchange,  the 
higli  rate  in  tlie  shop  of  tlie  pawn-broker,  and  the 
low  rate  on  govf-rnment  bonds,  ilhistrate  and  en- 
force  this    rule.     These  inflexible  laws  of  finance 


30  MONEY,   TRADE,  AND   BANKING. 

are  in  the  interest  of  the  mass  of  the  people.  It  ia 
in  their  interest,  as  it  is  in  the  interest  of  every 
man  in  the  community,  to  have  doubtful  and  haz- 
ardous enterprises  kept  within  reasonable  limit,  by 
high  rates  of  interest  on  capital  ventured  in  them. 
Those  industries  which  supply  the  necessities  of, 
and  furnish  employment  to,  the  mass  of  the  people, 
secure  what  capital  they  need  at  the  very  lowest 
practicable  rate.  Being  the  longest  established,  on 
the  most  secure  foundation,  and  needing  the  largest 
amount  of  capital,  they  secure  it  at  the  lowest  rates, 
and  are  thereby  enabled  to  pay  higher  wages  and 
to  sell  their  products  at  lower  rates ;  while  the 
newest  and  most  uncertain  enterprises  pay  the 
highest  rental  for  capital,  whether  it  be  for  the 
building  of  a  house  in  an  undesirable  locality,  or 
the  erection  of  a  mill  to  manufacture  goods  of  doubt- 
ful value.  No  portion  of  the  people  are  proportion- 
ately so  much  interested  in  the  stability  of  all  kinds 
of  business  as  the  wage-worker.  To  him  it  is  a 
matter  of  daily  bread. 

The  prohibition  in  this  country  of  all  entail  of 
property,  and  the  freedom  of  every  man  to  dispose 
of  his  capital  to  any  person  in  any  manner  and  for 
any  price  they  can  mutually  agree  upon  absolutely 
or  conditionally,  whether  called  loans  or  sales,  in- 
duces hundreds  to  loan  their  capital  rather  than 
use  it  themselves.  This  freedom  of  capital  is  at 
the  foundation  of  business  prosperity.  Like  the 
governor  on  the  engine,  which  is  left  free  to  eX' 
pand  and  contract  the  circle  of  its  movement,  there- 


INTEREST.  31 

by  keeping  the  working  power  of  the  ponderous 
machinery  at  its  most  effectiye  point,  so  the  com- 
pensation paid  for  the  use  of  capital  is  the  governor 
of  the  stupendous  movements  of  finance.  Its  free- 
dom to  increase  and  to  decrease,  as  the  enterprises 
constantly  pressing  for  its  use  are  safe  or  unsafe,  is 
the  regulating  power  that  keeps  our  financial  sya^ 
tem  at  its  equilibrium.  The  reason  of  our  pros- 
perity, notwithstanding  the  laws  of  so  many  states 
attempt  to  interfere  with  the  freedom  of  the  move- 
ment of  capital,  is  that  these  laws  do  not  com- 
mend themselves  to  the  conscience,  and  are  against 
the  interests,  of  the  people,  and  are  therefore  in- 
operative. Their  only  effect,  if  perfectly  obeyed, 
would  be  to  make  the  cost  of  the  capital  employed 
in  all  enterprises,  —  the  safe  and  the  unsafe,  the 
useful  and  the  useless,  —  the  same,  raising  the 
rate  of  interest  to  those  great  and  fundamental 
enterprises  which  now  secure  their  capital  at  the 
lowest  rate,  thereby  increasing  the  cost  of  their 
products  to  the  consumer,  and  lowering  it  to  the 
doubtful  or  chimerical  enterprises  which  use  up 
and  practically  destroy  capital,  for  a  time,  in  enter- 
prises soon  dead. 

It  is  not  for  the  interest  of  the  public  that  en- 
terprises which  for  to-day  prove  visionary  and  un- 
profitable, should  be  absolutely  stopped,  because 
they  almost  invariably  prove  ultimately  useful  in 
developing  the  resources  of  the  country.  The  only 
practical  way  that  finance  has  found  to  keep  them 
m  proper  proportion  to  the  immediately  useful  and 


32  MONEY,   TRADE,  AND  BANKING. 

necessary,  in  an  experience  covering  centuries,  is 
by  the  restraints  of  higher  rates  for  the  use  of  cap- 
ital thus  employed. 

Very  few  writers  on  finance  now  dispute  the 
proposition  that  any  restrictive  interference  with 
the  mobility  of  capital  results  in  injury  to  the  mass 
of  the  people.  To-day,  as  compared  with  a  cent- 
ury ago,  capital  seems  almost  liquefied.  Invest- 
ments were  never  before  so  insecure  to  the  indi- 
vidual, and  never  so  permanent  to  society.  Capital 
was  never  so  equally  distributed,  was  never  increas- 
ing so  rapidly,  and  the  mass  of  the  people  was 
never  so  secure  in  its  use,  enjoyment,  and  posses- 
sion as  now. 

In  bringing  this  to  pass,  and  in  all  the  progress 
we  have  made  in  commercial  exchanges,  banks  have 
been  a  safe  and  indispensable  agent,  and  none  of 
them  more  so  than  those  established  under  the  pres- 
ent National  Bank  Act. 


CHAPTER  VII. 

BANKS  A  NECESSITY. 

The  business  of  the  banker  is  as  simple  and  as 
easily  understood  as  that  of  the  merchant,  the  man- 
ufacturer, the  trader,  or  the  farmer;  it  is  just  as 
legitimate,  just  as  necessary,  just  as  indispensable. 
The  farmers  all  over  the  world  produce  the  raw 
material,  the  merchants  collect  this  raw  material 
(buy  it),  and  also  distribute  manufactured  articles 
to  traders  (sell  to  them).  The  manufacturer  takes 
the  raw  material  from  the  merchant  (buys  it  of 
him)  and  converts  it  into  the  forms  in  which  it  is 
consumed.  The  trader  distributee)  it  (sells  it)  to 
the  consumers,  —  wage- workers  and  farmers,  —  tak- 
ing from  the  farmer  in  exchange  the  raw  material, 
which  he  sends  to  the  merchant,  and  from  the 
wage-worker  the  obligations  against  the  banks, 
(bank-notes),  which  the  manufacturer  or  farmer 
gave  him  for  his  labor. 

These  exchanges  of  property  cannot  be  made, 
unless  they  are  accompanied  by  some  means  of 
exchanging  the  titles  to  the  property  exchanged. 
This  is  easily  accomplished  without  bankers,  where 
the  property  of  A.  is  desired  by  the  neighboring 
farmer  B.,  and  B.  desires  the  property  of  A.     But 


34  MONEY,   TRADE,   AND  BANKING. 

when  the  farmer  in  Calcutta  wishes  to  exchange 
his  raw  material  for  the  goods  manufactured  in  Bir- 
mingham, it  must  go  through  the  whole  circle  of 
trade  and  manufacture,  and  the  assistance  of  the 
banker  is  required  by  each  one  of  the  thousands  who 
compose  this  circle  in  order  properly  to  exchange 
and  adjust  the  titles  of  each  one  of  the  thousands 
to  his  share  of  the  property,  at  each  stage  of  its 
progress.  So,  too,  when  the  farmer  in  Iowa  wishes 
to  exchange  his  raw  materials  for  the  cloths  of 
Lowell. 

Each  exchange  of  property  (not  primitive  barter) 
is  accompanied  by  two  papers  :  one  is  given  by  the 
seller  to  the  buyer,  which  is  a  certificate  that  the 
property  described  in  it  has  passed  from  the  posses- 
sion of  the  seller  to  that  of  the  buyer,  and  is  called 
a  bill  of  sale,  which  vests  the  title  to  the  property 
in  the  buyer.  The  other  is  given  by  the  buyer  to 
the  seller,  and  is  a  title  to  an  equal  amount  of  the 
property  of  the  buyer,  or  some  other  party,  and  is 
called  note,  draft,  check,  bank-note,  etc.,  as  the 
case  may  be.  This  exchange  of  titles  completes  the 
transaction  between  these  two  parties.  At  this 
point  in  the  transaction  the  assistance  of  banks  is 
indispensable,  for  without  the  assistance  of  the 
banker  it  would  be  impossible  for  the  seller  to  come 
in  possession  of  the  property  to  which  he  has  ac- 
cepted a  title  in  exchange  for  the  property  he  has 
just  parted  with. 


CHAPTER   VIII. 

GOVERNMENT  BONDS. 

The  fact  that  banks  are  required  to  deposit  with 
the  United  States  treasurer  government  bonds,  to 
secure  against  loss  the  holders  of  the  promissory 
demand  notes  issued  by  the  banks,  may  mislead 
some  honest  people  as  to  the  true  character  of  these 
bonds  ;  it  may,  therefore,  be  well  to  state  exactly 
what  the  bonds  issued  by  the  United  States  govern- 
ment really  are,  before  proceeding  to  examine  the 
workings  of  the  national  banking  system. 

The  United  States  bonds  were  given  for  and  now 
represent  property  actually  received  from  individ- 
uals by  the  United  States  government.  Certain 
individuals  voluntarily  surrendered  the  Avhole  or  a 
large  part  of  their  property  to  the  whole  people 
(namely,  the  government),  in  the  day  of  their  ne- 
cessity, but  for  which  voluntary  surrender  of  their 
property  by  individuals  the  government  would  have 
been  compelled,  at  that  time,  to  take  by  force 
from  all  the  people  the  same  amount  of  property 
as  that  voluntarily  surrendered  by  the  few,  taking 
from  each  person  that  fraction  of  his  property  which 
his  whole  property  bore  to  the  property  of  all  the 
people    conjbined    (taxes).       The    amount    then 


36  MONEY,   TRADE,  AND  BANKING. 

needed  was  so  large  as  to  make  it  impracticable  to 
immediately  collect  it  by  taxation. 

Some  individuals  could  surrender  all  their  prop- 
erty without  seriously  disturbing  society  or  them- 
selves ;  but  all  could  not  give  up  so  large  a  part 
without  bringing  disaster  on  all.  Each  person  at 
the  time  he  voluntarily  surrendered  his  property 
received  for  it  from  the  whole  people  (the  govern- 
ment) their  solemn  obligation  (United  States 
bonds)  to  contribute  from  their  property  from  year 
to  year  (taxes)  an  amount  sufficient  to  return  to 
him,  on  a  certain  day  in  the  future,  a  specified 
amount  of  property  as  the  equivalent  of  that  vol- 
untarily surrendered  by  him  to  the  government; 
until  which  day  the  government  further  agreed  to 
pay  to  him,  quarterly,  a  sum  agreed  upon  for  the 
use  of  the  capital  surrendered. 

These  government  bonds  are,  in  essence,  titles  to 
a  fraction  of  the  property  of  each  and  every  person 
in  the  country,  who  thankfully  gave  the  title  to 
this  fraction  of  his  property  at  the  time  the  bonds 
were  made,  that  he  might  thereby  save  the  bal- 
ance ;  each  individual  is  personally  indebted  to  the 
holders  of  these  bonds  because  of  the  voluntary 
surrender  of  his  property  which  the  bondholder 
then  made  in  place  of  his  surrender.  Each  of  them 
has  had  and  enjoyed  the  fraction  then  saved  to  him, 
and  its  increase  from  that  day  to  this. 

The  United  States  bonds  are  an  admirable  secur- 
ity for  the  circulating  demand  notes  of  national 
banks,  or  for  any  other  obligation ;  but  they  ar« 


GOVERNMENT  BONDS.  37 

not  money.  They  fulfil  none  of  the  conditions 
of  money.  They  represent  uncollected  taxes,  —  a 
lien  on  property.  They  represent  fixed  and  not 
quick  capital.  They  have  no  rightful  place  in 
banks  of  discount,  except  as  security  for  business 
notes,  and,  to  a  limited  amount,  as  a  special  re- 
serve. The  whole  theory  and  practice  of  bank- 
ing is  the  dealing  in  titles  to  property  in  transit 
that  quickly  mature.  Government  bonds  are  the 
exact  opposite. 


388174 


CHAPTER  IX. 

NATIONAL  BANKS. 

A  BANK  is  made  by  five  or  more  persons,  who, 
desiring  to  begin  the  business  of  banking,  put  into 
a  common  fund  the  whole  or  a  certain  part  of  the 
capital  of  each,  sufficient  to  make  up  the  required 
amount,  say  $100,000,  each  taking  from  the  custo- 
dian of  the  fund  a  paper  which  states  what  propor- 
tion of  the  whole  capital  of  the  bank  belongs  to 
him. 

Having  the  requisite  capital,  the  next  step  is  to 
purchase  so  much  of  the  obligations  of  the  United 
States  (government  bonds)  as  the  law  requires  the 
bank  to  deposit  to  secure  the  circulating  promissory 
demand  notes  it  applies  for.  Surrendering  these 
bonds  to  the  secretary  of  the  United  States  Treas- 
ury, not  absolutely,  but  in  trust  for  the  benefit  of 
the  whole  people  and  the  bank,  the  bank  gets  from 
the  United  States  treasurer  notes  in  blank,  ready 
for  its  officers  to  sign,  to  the  amount  of  ninety  per 
cent,  of  the  bonds  surrendered,  so  made  and  printed 
that  they  cannot  be  counterfeited. 

These  blank  notes  are  of  no  more  value  than 
waste  paper  when  they  are  received  from  the  treas- 
urer of  the  United  States  by  the  bank.     They  are 


NATIONAL  BANKS.  39 

to  the  bank  exactly  what  any  blank  note  is  to  the 
merchant.  But  when  they  are  signed  by  the  proper 
ofl&cers  of  the  bank  they  then  have  the  full  value 
stated  in  them  ;  that  is  to  say,  they  are  worth  just 
as  much  as  and  no  more  than  any  other  promissory 
demand  note,  the  payment  of  which  is  as  thoroughly 
secured. 

Calling  them  bank-bills,  currency,  or  money,  does 
not  change  the  fact.  All  these  terms  are  simply 
descriptive  of  the  use  to  which  they  are  put.  The 
fact  that  they  are  promissory  demand  notes,  and 
that  only,  is  very  carefully  stated  in  the  National 
Bank  Act  in  the  following  words,  namely :  "  Upon 
the  transfer  and  delivery  of  bonds  to  the  United 
States  treasurer,  etc.,  the  association  (bank)  shall 
be  entitled  to  receive  circulating  notes,  in  blank,  to 
the  amount  of  ninety  per  cent,  of  the  bonds  so  de- 
posited. After  any  such  association  (bank)  shall 
have  caused  its  (blank)  promises  to  pay  .  .  .  to  be 
signed  ...  in  such  manner  as  to  make  tJiem  ohlig- 
atory  promissory  notes,  payable  on  demand,  such 
association  (bank)  is  authorized  to  issue  and  circu- 

Thus  it  appears  that  it  is  stated,  as  clearly  as  it 
is  possible  to  state  it,  that  the  government  assumes 
no  respoiisllMHty  for  the  issuing  of  national  bank 
notes.  It  prohibits  the  bank  from  issuing  its  notes 
for  more  than  ninety  per  cent,  of  the  aggregate 
amount  of  United  States  bonds  deposited  by  it 
with  the  United  States  treasurer  to  secure  its  circu- 
lating notes ;  and  in  order  to  be  absolutely  certain 


40  MONEY,   TRADE,  AND  BANKING. 

that  this  restrictive  provision  of  the  National  Bank 
Act  is  complied  with,  it  prints  the  blanks  for  the 
national  bank  notes  itself.  Here  its  responsibility 
begins  and  ends. 

It  is  true  that  the  government  has  its  bonds,  but 
it  holds  them  as  the  trustee  of  each  individual  who 
has  in  his  possession  any  national  bank  notes,  and 
not  for  the  banks.  The  title  of  the  bank  to  them 
is  secondary.  It  is  a  restrictive  measure  upon,  and 
not  in  the  interest  of  the  bank,  but  in  the  interest 
of  the  people  who  take  the  notes  of  the  bank.  It 
is  true  the  government  is  paying  interest  on  its 
bonds  to  the  banks  that  deposit  them  as  security 
for  their  circulating  notes,  and  the  banks  are  paying 
no  interest  on  their  circulating  notes.  The  banks 
do,  however,  pay  in  taxes  what  is  equivalent  to  full 
interest  on  the  untaxable  bonds  that  secure  their 
circulating  notes.  By  an  ingeniously  contrived 
system  of  taxing  the  business  of  the  banks,  so  as  to 
collect  taxes  from  each  of  them,  not  in  proportion 
to  the  amount  of  the  circulating  notes  each  has 
issued,  but  in  proportion  to  the  amount  of  business 
done  by  each,  the  national  and  state  governments 
receive  from  the  banks,  as  a  whole,  more  money 
than  four  per  cent,  interest  on  the  aggregate  na- 
tional bank  notes  outstanding. 

The  national  bank  notes  outstanding  October  27, 
1880,  amounted  to  $317,350,000.  Interest  on  this 
amount  at  four  per  cent,  would  be  $12,694,000 ; 
while  the  state  and  national  taxes  paid  by  the 
banks  in  1880  amounted  to  $14,619,000.     Thii 


NATIONAL  BANKS  41 

statement  shows  the  amount  of  taxes  collected  on 
capital  in  banks  which  usually  escapes  taxation. 
The  equivalent  of  taxes  on  the  bonds  is  also  col- 
lected at  each  time  the  interest  on  the  bonds  is  paid, 
by  the  rate  of  interest  the  government  pays  on 
them,  being  less  by  just  the  amount  of  the  taxes, 
were  the  bonds  taxable.  The  government  bonds 
specify  that  they  are  not  again  taxable ;  but  the 
banks  pay  in  taxes  nearly  two  million  dollars  more 
than  the  interest  on  the  bonds  deposited  by  the 
banks  with  the  United  States  Treasurer,  to  secure 
their  circulating  notes. 

Whether  this  is  for  the  best  interests  of  the  peo- 
ple, is  not  so  clear.  Banks  were  not  invented  or 
created  by  the  government.  They  existed  long  be- 
fore the  United  States  government  was  created,  and 
may  exist  long  after  it  has  passed  away.  It  is  en- 
tirely proper,  and  the  duty  of  the  government,  to 
take  from  the  banks  in  taxes  a  sum  equal  to  the 
pecuniary  benefit  conferred  upon  them  by  the  gov- 
ernment, and  to  provide  all  the  safeguards  neces- 
sary to  prevent  the  banks  from  cheating  the  people 
by  means  of  the  "  promissory  notes  "  (money)  they 
issue,  or  in  any  other  manner ;  but  any  interfer- 
ence further  than  that  must  result  in  mischief. 

The  National  Bank  Act  gives  a  very  complete 
description  of  the  work  done  by  a  bank.  It  says 
having  been  qualified  to  do  so,  a  bank  may  "  carry 
on  the  business  of  hanking,  namely,  by  discounting 
and  negotiating  promissory  notes,  drafts,  bills  of 
exchange,  and  other  evidences  of  debt ;  by  receiv- 


42  MONEY,   TRADE,   AND  BANKING. 

ing  deposits ;  by  buying  and  selling  exchange,  coin, 
and  bullion  ;  by  loaning  money  (its  property)  on 
personal  security  ;  by  obtaining,  issuing,  and  cir- 
culating notes,  according  to  tlie  provisions  of  this 
act."  Every  one  of  the  things  specified,  as  proper 
for  a  bank  to  deal  in,  excepting  coin  and  bullion,  is 
a  title  to  property  "  in  transit."  In  fact,  national 
banks  can  deal  in  nothing  else  with  safety.  They 
have  dealt  in  government  bonds,  it  is  true,  but 
under  special  protection  and  exceptional  conditions. 
So  large  a  portion  of  the  capital  used  in  their  busi- 
ness is  upon  "  call "  (deposits)  that  the  titles  they 
take  for  their  loans  must  be  of  fixed  value  and  to 
property  that  they  can  quickly  realize  on.  The  av- 
erage unexpired  time  before  they  will  come  in  pos- 
session of  the  property,  the  titles  to  which  they 
receive  in  exchange  for  their  capital  (their  loans), 
does  not  much  exceed  thirty  days. 

The  word  bank  means  bank  of  discount,  not  a 
trust  company,  whether  called  Savings  Bank,  Life 
Assurance  Association,  Loan  Association,  or  by 
any  other  name.  All  of  these  only  deal  in  titles  to 
real  or  fixed  property.  They  belong  to  a  different 
guild,  and  are  not  like  and  have  no  more  connec- 
tion with  institutions  engaged  in  banking  than  do 
individuals  who  loan  capital  on  real  estate  and 
like  property.  The  National  Bank  Act  prohibits 
"  banks"  from  dealing  in  titles  to,  or  loaning  money 
upon  real  estate.  It  confines  the  banks  to  dealing 
m  titles  to  property  "in  transit."  They  cannot 
lawfully  invest  one  dollar  in  any  property  whatever 
not  "  in  transit." 


NATIONAL  BANKS.  43 

Property  in  transit  is  any  property  between  the 
producer  and  final  consumer.  A  cooking  stove  is 
"  in  transit  "  until  it  comes  into  the  possession  of 
the  family.  A  machinist's  lathe  is  "in  transit"  un- 
til it  becomes  the  property  of  the  man  who  is  to 
use  it  to  make  other  machinery.  Every  form  of 
personal  property  is  "  in  transit "  until  it  reaches 
the  hands  of  the  man  who  buys  it  to  use,  not  to 
Bell  again. 

Experience  proves  that  without  legal  prohibition 
banks  will  allow  their  capital  to  accumulate  in 
fixed  property  to  the  injury  of  the  great  manufact- 
uring and  distributing  interests,  deranging  the  ex- 
changes of  the  country  and  throwing  workmen  out 
of  employment;  and  for  this  reason  they  are  re- 
stricted to  dealing  in  titles  to  property  in  transit. 

The  requirement  of  reserves  in  greenbacks,  bank 
balances,  circulation,  etc.,  by  the  bank  act,  is  very 
necessary  for  the  security  of  the  bank.  It  is  neces- 
sary that  bank  officers  know  their  proper  propor- 
tion and  substance,  but  they  need  not  be  discussed 
here.  Their  effect  upon  the  business  of  banking, 
as  of  all  restrictions,  is  to  increase  or  diminish 
safety  in  the  conduct  of  its  business,  and  to  in- 
crease or  diminish  the  cost  to  the  community  of 
the  services  which  it  is  obliged  to  have  from  banks. 


CHAPTER  X. 

BANKS  IN  THE  INTEKEST  OF  THE  PEOPLE. 

The  government  (the  people)  derives  almost  in* 
calculable  advantages  from  requiring  that  the  bank- 
ing capital  of  the  country,  to  secure  the  circulating 
demand  notes  of  the  banks,  shall  first  be  invested 
in  government  bonds.  It  gives  security  to  the  gov- 
ernment debt.  The  integrity  of  the  government 
is  by  this  arrangement  so  interlaced  with  every 
interest  in  the  country,  that  the  dullest  intellect 
cannot  fail  to  see  that  the  repudiation  of  the  gov- 
ernment bonds  would  strike  every  man  having  a 
national  bank  note,  making  it  clear  to  his  pocket 
if  it  does  not  to  his  head,  that  the  violation  of  the 
public  faith,  as  well  as  private,  is  not  only  a  dis- 
grace to  Christian  civilization,  but  an  immediate 
loss  to  every  citizen. 

Again,  it  gives  to  all  the  national  bank  notes  a 
uniform  and  certain  value  all  over  the  country, 
thereby  lessening  the  excessive  rates  of  exchange 
between  one  part  of  the  country  and  another,  which 
are  unavoidable  under  any  system  of  banking  con- 
!.rolled  by  the  states.  Under  the  old  state  banking 
system  the  price  of  exchange  sometimes  reached 
above  ten  per  cent,  between  Chicago  and  Boston. 


BANKS  IN  TUE  INTEREST  OF  THE  PEOPLE.   45 

This  unnecessary  tax  upon  the  industries  of  the 
country  cost  the  country  millions  of  dollars  annually, 
every  dollar  of  which  came  directly  from  the  pockets 
of  the  people,  in  the  increased  price  which  every 
trader  was  obliged  to  ask  for  his  goods,  in  order  to 
reimburse  himself  for  this  loss.  It  also  secures  a 
much  lower  rate  of  interest  for  the  use  of  capital, 
by  the  feeling  of  security  which  it  inspires,  as  it 
ministers  very  greatly  to  the  stability  of  all  the  oper- 
ations of  business  and  social  life,  thus  cheapening 
the  cost  to  the  consumer  of  every  article  he  buys. 

Still  again  the  difference  in  value  of  sales  to 
and  purchases  from  one  section  of  the  country  by 
another,  in  certain  seasons  of  the  year,  and  in  cer- 
tain products,  is  counted  by  millions,  but  the  be- 
neficent working  of  the  banking  system  saves  the 
shock  and  strain  of  these  immense  variations  in  a 
given  season  of  the  year,  locality  or  department  of 
commerce,  by  so  adjusting  the  supply  of  capital  to 
the  demands  of  time  and  place  as  to  lessen  mate- 
rially the  total  amount  of  capital  required.  This 
also  cheapens  production,  enabling  the  masses  to 
secure  the  things  they  consume  at  a  less  price. 

But  for  banking  every  man  in  business  would  be 
obliged  to  keep  about  him,  throughout  the  whole 
season,  all  the  capital  he  needed  to  use  at  that  part 
of  the  season  when  he  required  the  most  capital. 
That  is  to  say,  he  must  at  all  times  have  on  hand 
the  maximum  of  capital  necessary,  and  any  excess 
of  that  needed  for  present  wants  would  be  profitless 
when  ho  was  not  using  it.     All  the  earnings  that 


46  MONEY,  TRADE,  AND  BANKING. 

could  be  got  from  any  body  of  capital  that  without 
banking  must  remain  idle,  must  be  added  to  what 
the  article  for  the  production  of  which  the  capital 
was  kept  idle  now  costs  the  final  consumers,  the 
large  majority  of  whom  are  wage-workers. 

Take  the  cotton  crop,  for  example.  When  the 
cotton  crop  is  ready  to  be  sent  to  market,  the  whole 
body  of  farmers  who  produce  it  probably  owe  a 
sum  equal  to  the  value  of  the  whole  crop.  That  is 
to  say,  the  amount  of  money  left  in  the  hands  of 
the  cotton-groAvers  as  a  capital  with  which  to  grow 
another  crop  is  no  more  than  they,  as  a  body,  owe 
on  their  realty.  The  value  of  the  raw  cotton  in 
1870  was  about  $125,000,000.  With  no  banking, 
this  sum  must  have  been  in  the  hands  of  the  cotton 
growers  all  the  year,  or  the  crop  must  be  reduced 
to  that  amount  of  capital  they  permanently  had. 
So  of  wheat,  1245,000,000.  So  of  manufactured 
products.  Without  banking  each  man  doing  any 
kind  of  business  must  have,  all  the  time,  as  much 
capital  as  he  needs  at  the  time  when  he  requires 
the  most  capital. 

Whoever  furnishes  to  another  anything  of  in- 
trinsic value,  cloths,  tools,  seeds,  animals,  etc.,  "on 
time,"  furnishes  capital  to  the  value  of  the  thing 
sold  on  credit ;  and  the  seller  must  deplete  his 
woi'king  capital  by  so  much,  or  secure  a  like  volume 
of  capital  from  a  third  party  (usually  the  banks), 
and  so  on.  Each  man  in  business  must  have,  of 
his  own,  on  the  average,  the  amount  of  capital  of 
his  minimum  needs.     The  balance  he  uses,  in  most 


BANKS  IN  THE  INTEREST  OF  THE  PEOPLE.   47 

cases,  is  ultimately  furnished  by  the  banks.  Bank- 
ing makes  nearly  every  dollar  of  the  capital  in  the 
country  productively  available  every  day  in  the 
year. 

It  generally  obscures,  rather  than  serves  to  make 
clear,  a  subject  to  burden  its  discussion  with  statis- 
tics ;  but  tliis  point  cannot  be  made  so  cleiir  by  any 
process  of  reasoning,  as  by  stating  the  work  per- 
formed daily  by  the  capital  each  man  in  business 
is  obliged  to  have  in  advance  of  its  immediate  use 
by  him,  which  is  now  aggregated  in  deposits  in  the 
banks,  and  which  would  inevitably  be  idle  but  for 
banking. 

The  capital  of  all  the  national  banks,  including 
their  undivided  earnings,  is  about  $600,000,000. 
The  people  have  placed  in  their  hands  capital  they 
do  not  need,  for  one  day  or  more  (deposits),  about 
$900,000,000  more.  Total,  $1,500,000,000.  The 
banks  have  loaned  to  individuals  $1,300,000,000. 
Taking  all  the  banks  in  the  country  on  any  given 
day  and  the  unexpired  time  on  $1,000,000,000  of 
this  loan  will  average  about  thirty  days  (the  other 
$300,000,000  loan  is  reasonably  permanent,  being 
on  their  own  circulating  notes)  This  loan  averages 
about  sixty  days  each,  and  is  renewed  six  times  a 
year. 

A  few  men  have  about  the  same  amount  of  capi- 
tid,  borrowed  from  the  bank,  every  day  in  the  year. 
Others  borrow  for  one  department  of  their  busi- 
ness at  one  time,  advancing  it  to  their  customers  in 
the  form  of  credit  on  the  goods  they  sell,  and  for 


48  MONEY,  TRADE,  AND  BANKING. 

another  department,  representing  a  different  raw 
material,  at  another  time.  Taking  it  all  in  all  the 
$900,000,000  of  bank  deposits  undoubtedly  do  the 
work  which  it  would  require  $6,000,000,000  of 
capital  to  do  in  addition  to  what  the  country  now 
has,  were  banks  to  make  no  loans  on  deposits. 
As  agents  for  facilitating  the  use  of  capital  not 
immediately  needed  by  its  owners,  they  are  the 
means  of  very  materially  cheapening  the  cost  of  all 
the  products  of  the  country. 

The  banking  capital  in  Worcester,  Mass.,  a  city 
of  60,000  inhabitants,  is  12,200,000.  The  bank 
deposits  average  about  $2,500,000.  The  average 
time  each  dollar  deposited  remains  on  deposit  is 
about  ten  days,  and  the  exchanges  annually  made 
through  these  banks  are  about  $100,000,000.  In 
fifty-six  New  York  banks  with  a  capital  and  surplus 
of  $90,000,000,  the  deposits  average  about  $270,-. 
000,000.  The  average  time  each  dollar  deposited 
remains  in  bank  is  about  two  days,  and  the  value 
of  the  exchanges  made  by  these  deposits  is  about 
$50,000,000,000. 

If  each  one  dollar  deposited  in  banks  in  the 
United  States  remains  three  secular  days,  the  ex- 
changes made  by  the  $900,000,000  deposited  would 
be  $90,000,000,000.  Whether  the  figures  given 
are  correct  or  not,  it  is  certain  that  the  capital 
which  each  business  man  in  the  country  thinks  pru- 
dence requires  him  to  have,  in  advance  of  the  ne- 
cessities of  the  day,  when  aggregated,  is  an  immense 
Bum,  and  the  work  done  with  it  by  banking  equals 


BANKS  IN  THE  INTEREST  OF  THE  PEOPLE.   49 

the  addition  to  the  capital  of  the  country  of  many 
times  that  amount. 

There  is  no  pretence  that  all  the  property  "in 
transit"  that  passes  from  one  person  to  another 
during  a  year  aggregates  more  than  about  one  third 
the  sum  named  as  the  exchanges  of  titles  to  prop- 
erty made  by  the  banks.  It  must  be  remembered 
that  there  are  immense  transactions  in  all  forms  of 
titles  to  property,  where  the  property  itself  is  not 
moved.  Although  these  bank  deposits  average  to 
be  all  drawn  out  every  three  days,  in  equal  propor- 
tion each  day  of  the  three,  the  deposits  as  surely 
average  to  be  renewed  in  three  days,  and  each  is 
going  on  at  the  same  time,  thus  giving  this  aggre- 
gate deposit  the  character  of  a  permanent  loan,  as 
the  human  body  is  said  to  be  renewed  each  seven 
years  while  keeping  its  integrity.  Perhaps  a  better 
illustration  is  the  passenger  traffic.  Trains  are  run 
at  various  hours,  full  each  way,  run  with  a  reasona- 
ble certainty  of  being  full,  when  that  result  depends 
upon  the  voluntary  and  selfish  action  of  isolated 
persons. 

Think  for  a  moment  of  its  effect  upon  its  busi- 
ness interests  if  each  man  in  the  country  attempted 
to  draw  out  of  the  bank  the  balance  due  him  (his 
bank  deposits)  and  keep  it  out  twenty-four  hours,  a 
total  of  about  $1,000,000,000.  It  would  produce  a 
commercial  disaster  that  no  man  can  conceive  of, 
much  less  estimate ;  and  yet  we  proceed  with  as 
much  assurance  of  safety  in  this  department  of  hu- 


50  MONEY,   TRADE,  AND  BANKING. 

man  affairs  as  in  any  other,  in  fact  with  greater 
safety. 

Taking  it  all  in  all,  the  world  over,  there  is  no 
other  department  in  which  we  can  so  safely  calcu- 
late the  future;  where  we  have  so  strong  an  as- 
surance that  what  has  been  will  be.  On  the  great 
sea  of  finance  the  wrecks  of  the  fortunes  of  indi- 
viduals who  bid  defiance  to  its  laws  are  found  on 
every  hand;  but  the  transactions  of  the  world  — 
from  the  check  sent  by  the  smallest  country  trader 
to  the  city  merchant,  to  the  floating  of  millions  of 
the  national  debt ;  from  the  pay  for  a  load  of  wheat 
the  country  farmer  takes  to  the  country  store  or 
railway  station,  to  the  pay  for  the  cargoes  of  the  na- 
vies of  the  world  —  ride  on  her  bosom  in  a  security 
as  nearly  perfect  as  is  found  in  any  human  affairs. 

The  financial  system  is  of  the  most  delicate  or- 
ganization, so  delicate  that  the  slightest  breath 
disturbs  it ;  yet  it  is  tougher,  more  stable,  more  en- 
duriner  than  all  other  human  institutions.  The  fears 
of  its  servants  do  not  arise  from  the  workings  of 
the  natural  and  beneficent  laws  of  finance,  but  from 
the  meddling  of  alien  or  ignorant  Ijands. 

No  financial  contrivance  of  the  present  time  is 
any  more  thoroughly  the  natural  product  of  past 
experience  than  the  national  banking  system  of 
the  United  States.  Every  consideration  urges  its 
extension,  with  some  slight  modifications,  to  the  ex- 
tent of  supplying  all  the  circulating  demand  notes, 
as  it  does  now  all  the  banking  facilities  required 
by  the  business  of  the  country.     Its  creation  was 


BANKS  IX  THE  ISTEREST  OF  THE  PEOPLE.   51 

but  the  putting  into  the  form  of  statute  law  the 
recognized  conditions  of  safe  banking,  and  prohibit 
ing  any  other.  The  universal  acquiescence  and  ap- 
proval of  the  system  recognizes  the  certainty  of  the 
continuance  of  what  now  is,  because  it  is  the  re- 
sult of  inexorable  business  laws  —  of  ages  of  busi- 
ness habits. 

There  is  no  department  of  business  in  which  its 
habits,  rules,  and  obligations  are  varied  so  little 
from  year  to  year,  and  even  from  century  to  cent- 
ury, as  in  that  of  banking.  The  operations  of  none 
are  more  simple,  and  none  require  more  nerve, 
penetration,  promptness,  and  integrity.  It  benef- 
icently binds  every  one  of  its  members  and  all  busi- 
ness men  to  implicit  obedience  to  their  promises. 
The  unwritten  banking  laws  of  the  ages  justly  pre- 
scribe the  conditions  upon  which  men  may  take 
part  in  making  the  exchanges  of  the  country,  while 
only  helping   their  endeavor. 

Any  man  can  enter  the  circle  of  business,  and  re- 
main there  as  long  as  he  obeys  its  laws.  He  can- 
not stay  there  one  day  after  violating  them.  If  his 
obligation,  iov  which  he  has  pledged  his  honor  and 
his  property,  is  not  satisfied  on  the  day  named,  the 
announcement  of  his  failure  is  flashed  to  the  ends 
of  the  country.  From  that  moment  he  can  neither 
buy  nor  sell,  and  business  men  no  longer  recognize 
him  as  one  of  their  number.  If  he  returns  to  the 
^uild  of  business  he  must  enter  as  a  new-comer. 


CHAPTER   XI. 

INDUCEMENT  TO  ENGAGE  IN  BANKING. 

The  inducement  to  persons  to  engage  in  bank- 
ing is  the  same  as  that  in  all  other  business, 
namely,  the  expectation  of  making  more  money 
by  doing  that  business  than  by  doing  any  other 
they  care  to  engage  in.  Whatever  capital  is  used 
to  make  a  bank  existed  as  real  or  personal  prop- 
erty, or  title  to  property,  before  the  bank  was  made, 
by  bringing  it  together,  and  afforded  an  income  to 
the  five  or  more  individuals  v^ho  made  the  bank. 

It  is  purely  a  question  of  the  use  one  vrill  make 
of  a  specified  amount  of  capital.  By  no  leger- 
demain can  one  use  the  same  capital  for  two  pur- 
poses at  the  same  time.  The  possession  of  capital 
gives  one  more  or  less  credit.  Credit  does  not 
mean  the  power  of  getting  something,  which  having 
does  not  lessen  what  another  has.  Any  use  of 
credit  is  the  borrowing  by  one  man  from  another 
of  his  capital,  the  having  of  which  by  the  borrower 
lessens  the  capital  the  lender  has  by  just  the 
amount  loaned.  Every  man  understands  that  any 
one  who  puts  $50,000  into  the  mining  business,  or 
manufacturing  business,  or  mercantile  business, 
has  that  much  less  to  use  in  any  other  investment; 


INDUCEMENT  TO   ENGAGE  IN  BANKING.     53 

It  is  precisely  the  same  with  banking.  Capital  in- 
vested in  the  banking  business  is  in  hanking^  and 
cannot  be  used  for  anything  else  until  it  is  got  out 
of  the  business  of  banking. 

The  profit  on  banking  will  average  no  more,  cov- 
ering a  period  of  years,  than  that  on  any  of  the 
other  kinds  of  business  requiring  the  same  skill  and 
judgment.  The  banking  business  may  be  entered 
into  with  the  same  freedom  as  any  kind  of  manu- 
facturing, mining,  farming,  or  any  kind  of  trade. 
Every  restriction  put  upon  it  by  the  law  is  one  to 
protect  the  people  from  being  cheated  by  the  in- 
competency or  dislionesty  of  those  engaged  in  bank- 
ing ;  not  to  hinder  any  one  from  doing  the  business 
of  banking,  or  to  help  any  one  who  undertakes  it. 

There  is  not  a  provision  in  the  law  intended  to 
obstruct  in  the  least  honest  and  safe  banking  by 
any  who  desire  to  do  it ;  or  that  gives  the  banking 
business  any  advantage  whatever  over  any  other 
business.  Putting  capital  together  to  make  a  bank 
or  trust  company  is  in  answer  to  a  real  or  supposed 
demand  for  its  use  in  that  business,  which  is  as 
promptly  and  freely  complied  with,  and  for  the 
same  reason  that  an  additional  factoi'y  is  built,  or 
an  additional  acre  of  ground  is  planted  to  wheat  or 
corn ;   and  banks  are,  to-day,  just  as  necessary. 

How  many  banks  we  shall  have,  where  they 
shall  be  located,  and  how  much  capital  they  shall 
have,  can  only  be  rightly  settled  by  the  unrestricted 
operation  of  tlie  law  of  supply  and  demand.  No 
government,  no   association  of   bankers,   no   body 


54  MONEY,    TRADE,   AND  BANKING. 

whatever  can  be  so  circumstanced  as  rightly  to  set- 
tle this  question.  To  attempt  it  is  to  do  violence 
to  the  best  interests  of  the  community. 

Free  banking  is  our  only  safety.  It  is  purely  a 
question  of  what  proportion  of  the  whole  capital  of 
the  country  shall  be  devoted  to  the  holding  of  the 
titles  to  property  "  in  transit,"  and  this,  in  the 
nature  of  the  case,  can  only  be  determined  by  ex- 
periment. Inventions  are  so  rapid,  and  the  condi- 
tions of  trade  so  variable,  that  this  question,  like  all 
other  purely  business  questions,  must  be  left  to  the 
free  action  of  the  people  without  governmental  in- 
terference. If  there  are  too  many  banks,  the  capi- 
tal invested  in  them  will  not  make  as  good  return 
to  its  owners  as  that  invested  directly  in  farming, 
manufacturing,  or  trading,  and  it  will  be  withdrawn 
from  banking  and  devoted  to  some  other  business. 
If  capital  invested  in  banking  is  more  profitable  to 
its  owners  than  that  invested  in  other  pursuits,  it 
will  be  taken  out  of  those  pursuits  and  put  into 
banking. 

Capital,  like  water,  is  always  pressing  with  all 
its  power  to  secure  a  common  level  for  its  whole 
volume.  The  competition  between  bankers  is  as 
sharp  and  persistent  as  between  persons  engaged  in 
any  other  business ;  and  their  charges  for  the  serv- 
ices they  render  are  kept  down  by  it  as  in  all 
other  business,  as  the  reports  of  their  profits,  open 
to  all,  fully  prove.  That  a  bank  is  a  necessity 
will  be  made  more  clear  by  examining  more  car© 
fully  the  work  it  does. 


CHAPTER  XII. 

PRACTICAL   WORKING  OF  A  BANK. 

(1.)  A  BANK  bu3's  (receives  on  deposit),  besides 
coin  and  bullion,  all  the  titles  to  property  deliver- 
able "  on  demand  "  (heretofore  described  as  the 
merchant's  cash),  which  come  into  the  hands  of 
every  man  in  its  neighborhood  engaged  in  any  kind 
of  trade  or  business  ;  in  place  of  which  it  gives  each 
depositor  a  title  to  a  like  amount  of  the  property  of 
the  bank,  to  be  satisfied  on  demand. 

(2.)  It  takes  from  any  person,  anywhere  in  the 
world,  any  perfect  title  which  he  may  have  to  any 
property,  in  the  hands  of  any  other  person  living 
anywhere  in  the  world,  and  collects  the  equivalent 
of  the  property,  and  turns  it  over  to  the  depositor. 

(3.)  It  buys  every  "good"  title  offered  for  sale 
to  property  "  in  transit,"  where  the  title  to  the 
property  is  not  perfect  until  a  certain  specified  day 
in  the  near  future  (notes  on  time),  if  the  capital  in 
its  possession  is  sufficient  to  do  so.  The  bank 
usually  requires,  in  addition  to  the  title  bought,  that 
the  seller  give  the  bank  a  title  to  a  like  amount 
of  his  own  property  by  writing  his  own  name  on 
the  back  of  the  note  (indorsing  it).  Of  course  the 
title  is  purchased  at  a  price  mutually  agreed  upon. 


56  MONEY,   TRADE,  AND  BANKING. 

The  difference  between  its  nominal  value  and  the 
price  paid  for  it  by  the  bank  is  called  "  discount," 
and  the  buying  of  the  note,  draft,  bill  of  exchange, 
etc.,  is  called  "  discounting  it."  C.  in  Chicago  sella 
a  thousand  bushels  of  wheat  to  B.  in  Boston  for 
$1,000.  As  soon  as  C.  delivers  the  wheat  and 
hands  a  bill  of  sale  to  B.,  C.  has  no  more  claim  to 
the  wheat  tlian  any  other  man  whom  B.  owes.  And 
B.,  by  the  act  of  accepting  it,  has  delivered  to  C.  a 
title  to  a  thousand  dollars'  worth  of  his  property. 
This  title  that  B.  gives  is  in  the  form  of  a  check, 
draft,  bill  of  exchange,  etc.  It  calls  for  the  imme- 
diate delivery  of  the  thousand  dollars'  worth  of 
property,  or  in  the  form  of  a  note  may  call  for  its 
delivery  at  a  fixed  day  in  the  future.  It  may  caU 
for  its  delivery  in  Chicago,  or  in  Boston,  or  in  Lon- 
don. The  general  rule  is  to  make  the  check,  draft, 
note,  etc.,  payable  at  the  place  of  business  of  the 
buyer. 

Again,  D.  in  Boston  sells  forty  cases  of  boots  to 
E.  in  Chicago  for  $1,000,  which  is  done  on  the  same 
day  and  upon  the  precise  relative  conditions  that 
the  wheat  is  sold.  It  is  plain  that  these  transac- 
tions balance  each  other.  Whatever  papers  are 
passed,  their  practical  significance  is  to  demonstrate 
that  fact.  All  trade  the  world  over  is  identical 
?«rith  the  balancing  transactions  described,  however 
remote  or  near  the  buyer  is  to  the  seller,  or  the 
jpecified  day  of  payment.  Every  man,  every  town, 
every  city,  every  country,  can  buy  only  by  selling 
an   equal   amount.     If   the  sales  of   property  ."  in 


PRACTICAL  WORKING   OF  A  BANK.         bl 

transit "  from  Boston  to  Chicago  exceed  like  sales 
from  Chicago  to  Boston,  the  difference  must  b« 
paid  in  coin  or  by  the  transfer  of  the  ownership  of 
titles  to  property  not  "  in  transit,"  from  citizens  of 
Chicago  to  citizens  of  Boston  (supposing  all  titles 
held  in  each  city  to  property  "  in  transit "  had 
been  exhausted).  This  requires  the  going  outside 
of  the  domain  of  banking  proper,  and  of  commerce 
proper,  into  that  of  the  trust  companies  and  real 
estate.  This  operation  takes  capital  heretofore  de- 
voted to  holding  property  "  in  transit "  and  puts 
it  into  fixed  property.  The  changes  of  capital 
from  real  estate  to  property  "  in  transit "  and  the 
reverse,  are  always  being  made,  but  in  ordinary 
times  they  relatively  balance  each  other.  It  is  im- 
possible to  use  any  capital  in  real  estate  that  it  is 
necessary  to  use  in  handling  property  "  in  transit." 
The  line  of  division  between  the  two  classes  of  prop- 
erty is  as  distinct  if  not  as  discernible  as  the  divid- 
ing line  between  the  United  States  and  the  British 
Empire,  and  the  interchange  between  them  is  gov- 
erned by  tlie  same  laws. 

The  title  to  property  taken  by  any  and  every 
bank,  the  world  over,  not  satisfied  at  the  counter  of 
the  bank  first  receiving  it,  is  finally  cancelled  at  the 
clearing  house. 


CHAPTER  XIII. 

CLEARING  HOUSE. 

There  is  no  device  of  banking  that  is  so  perfect 
an  epitome  of,  and  so  thoroughly  illustrates,  its 
workings  (excej)ting  the  loaning  of  its  property 
which  differs  in  no  respect  from  the  loaning  of 
capital  by  one  individual  to  another),  as  the  "  clear 
ing  house  "  ;  which  is  used  locally  in  most  cities, 
and  so  far  as  the  public  is  concerned,  by  its  con- 
nection with  all  other  clearing  houses,  unites  all 
the  banks  of  the  city,  the  country,  and  the  world 
into  one  bank. 

Usually  each  bank  in  town  or  city  connects  itself 
with  banks  in  one  or  more  cities  other  than  New 
York,  and  thereby  becomes  a  part  of  the  clearing- 
house system  of  those  cities  ;  and  each  is  connected 
with  some  New  York  bank,  and  through  that  con- 
nection becomes  a  part  of  the  New  York  clearing 
house.  The  New  York  banks,  through  private 
bankers,  branches  of  foreign  banking  houses,  con- 
nect themselves  with  London.  So  that  each  bank 
in  the  world  is  indissolubly  connected  with  every 
other  bank  in  the  world,  and  in  London  is  the 
final  clearing  house  of  the  world. 

The  clearing  house,  in  small  cities,  is  usually 
5ome  one  of  the  banks,  with  which  every  other 
bank   deposits  a   small  percentage  of   its   capital. 


CLEARING  HOUSE.  59 

This  deposit  does  not  practically  lessen  the  capital 
of  the  bank  making  it,  for  the  reason  that  the  de- 
posit there  made  is  counted  as  a  part  of  the  reserve 
of  the  bank  making  it  that  the  law  requires  it  to 
keep.  At  a  certain  hour  of  each  day  a  boy  from 
each  bank  meets  at  the  "  clearing  house  "  a  boy 
from  each  of  the  other  banks,  each  having  every 
check  that  the  bank  he  represents  has  paid  during 
the  day  upon  any  bank  in  the  city  other  than  it- 
self.^ With  his  package  of  checks  each  boy  pre- 
sents a  "  clearing  house  "  memorandum  having  the 
name  of  every  bank  printed  on  it,  between  debtor 
and  creditor  columns.  Against  the  name  of  each 
bank,  in  tlie  debtor  column,  the  boy,  before  he 
leaves  his  own  bank,  enters  the  aggregate  of  all  the 
checks  his  bank  has  in  the  package  upon  that  bank, 
and  carefully  foots  up  the  debtor  column.  The 
footing  shows  the  total  of  the  checks  his  bank  has 
upon  all  other  city  banks,  namely,  upon  the  "  clear- 
ing house."  Each  boy  in  succession  calls  off  the 
total  of  the  checks  his  bank  has  upon  each  of  the 
other  banks.  As  he  calls  them  off,  each  of  the 
other  boys  enters  in  the  creditor  column,  against 
the  bank  calling,  the  total  of  the  checks  that  bank 
has  upon  his  bank.  Having  gone  through  the  list, 
each  boy  adds  up  the  creditor  column.  The  dif- 
ference between  the  creditor  and  debtor  columns  of 
the  clearing  house  memorandum  each  boy  has  then 
*  The  uHiiiil  iiracticc  uow  is  for  each  bank  to  iucludo  witli  tho 
checka  it  sends  lu  the  "  clearinf^  iiouHc  "  all  the  matured  obliga- 
tioDfl  it  has  upon  each  of  tho  other  baukfl. 


60  MONEY,   TRADE,   AND  BANKING. 

shows  the  amount  due  the  clearing  house  (all  the 
other  banks)  from  his  bank,  or  to  his  bank  from 
the  clearing  house. 

Each  of  the  boys  then  calls  off  to  the  clerk  of  the 
clearing  house  the  totals  of  the  debtor  and  creditor 
columns  of  his  memorandum,  which  the  clerk  enters 
in  his  records.  After  each  boy  receives  and  verifies 
the  checks  each  of  the  other  banks  has  against  his 
bank,  each  gives  a  check  to,  or  receives  a  check 
from,  the  clearing  house,  as  the  balance  may  ap- 
pear, and  the  work  of  the  clearing  house  is  finished 
for  that  time. 

In  Worcester  eight  boys,  from  seventeen  to 
twenty  years  old,  meet  each  day  around  a  table  in 
the  directors'  room  of  the  clearing  house  bank  and 
settle,  in  fifteen  minutes,  the  business  of  its  eight 
banks  between  each  other  for  that  day,  amounting 
to  about  $125,000.  The  total  coin  and  currency- 
held  by  these  banks  average  about  $225,000,  their 
daily  transactions  about  $300,000.^  In  New  York 
fifty-seven  meet  daily  and  settle  in  like  manner  the 

1  The  clearing  house  ia  Worcester  is  made  each  day.  It  lives 
about  twenty  minutes  and  disappears.  It  has  no  capital.  The  bank 
acting  for  the  clearing  house  receives  from  each  bank  from  which  a 
balance  is  due  the  clearing  house  its  check  on  its  Boston  corre- 
spondent for  the  balance  due  the  clearing  house,  and  the  clearing- 
jiouse  bank  gives  to  each  bank  that  has  a  balance  due  it  from  the 
ilearing  house  its  check  on  its  Boston  correspondent  for  that  bal- 
ance. Of  course,  the  total  of  the  checks  given  by  the  clearing* 
house  bank  and  those  received  by  it,  balance  each  other  less  its  owi 
balance  with  the  clearing  house. 


CLEARING  HOUSE.  61 

business  the  banks  of  that  city  have  with  each 
other,  amounting  daily  to  about  $125,000,000. 
The  total  coin  and  currency  held  by  the  New  York 
banks  probably  average  about  $75,000,000,  and 
their  daily  exchanges  are  probably  about  $175,- 
000,000. 


CHAPTER  XIV. 

BY  WHOM  MONEY  IS  MADE. 

Money  is  necessarily  made  by  individuals,  not 
by  the  government.  It  is  impossible  for  any  gov- 
ernment to  make  the  money  daily  required  by 
its  people.  To  make  the  daily  payments  required 
by  the  trade  of  the  United  States,  there  are  from 
1200,000,000  to  $300,000,000  of  paper  obligations 
made  each  day  by  banks,  and  by  individuals  who 
have  deposits  in  banks,  which  is  money,  as  surely 
as  any  bank-note  or  greenback  is  money.  It  does 
the  office  of  money  for  the  day,  and  is  destroyed  at 
night.  It  is  impossible  to  make  the  exchanges  of 
the  country  unless  the  men  who  make  them  have 
and  freely  use  the  power  of  making  the  money 
they  require.  They  cannot  transfer  the  titles  to 
and  make  payments  for  the  goods  they  buy  and 
sell  without  it. 

Bank-notes  or  greenbacks,  and  much  more  coin, 
whatever  their  convenience  for  small  and  local 
transactions,  are  impracticable  for  the  larger  part 
of  commercial  transactions,  for  the  reason  that  they 
are  too  cumbersome.  It  is  impossible  to  have  them 
at  hand  at  all  times  and  places  they  are  needed. 
The  inconvenience  and  cost  of  their  transportation, 


BY   WHOM  MONEY  IS  MADE.  63 

small  as  is  the  percentage  of  that  form  of  money- 
no  w  used,  is  a  considerable  inconvenience  to  and 
tax  upon  industry.  Of  the  money  daily  used  a 
very  small  percentage  is  bank-notes.  The  great 
bulk  is  checks,  drafts,  and  telegrams.  The  tele- 
graph transmits  millions  upon  millions  of  bank 
credits  from  Boston  to  New  York,  Chicago,  London, 
etc.,  etc.,  and  the  reverse,  where  the  telegram  is  the 
only  money  used  ;  no  papers  of  any  kind  pass  or 
are  made,  certainly  none  pass  from  one  city  to  the 
other.  The  facts  of  the  telegram  are  confirmed  by 
letter.  All  that  is  done  is  to  write,  transmit,  and 
deliver  the  telegram  and  make  the  proper  entries 
on  the  books  of  the  merchants  and  bankers  inter- 
ested. This  money  lacks  no  essential  thing  that 
the  money  issued  by  the  banks  has.  If  that  de- 
scribed as  made  by  individuals  is  not  money,  then 
that  made  by  the  banks  is  not  money,  for  they  are, 
in  every  respect,  identical  in  substance.  Trade  in 
its  present  form  is  impossible  without  the  continu- 
ance of  the  right  which  every  man  has  now  of  mak- 
ing the  money  needed  for  his  daily  business,  as  far 
as  he  has  the  power  to  make  it,  which  power  is 
measured  by  his  credit. 

This  is  a  part  of  the  "  inalienable  rights  of  life, 
liberty,  and  tlie  pursuit  of  happiness,"  reserved  to 
the  people  in  the  United  States  Constitution,  and 
the  Constitution  of  every  State,  in  substance  if  not 
in  words.  Congress  has  the  same  right  and  power 
to  interfere  with  and  "  regulate  "  the  use  by  the 
people  of  any  of  these  forms  of  money  that  it  has 


64  MONEY,  TRADE,  AND  BANKING. 

"  to  regulate  commerce  with  foreign  nations  and 
among  the  several  States,"  and  no  more.  "  To  reg- 
ulate "  is  the  limit  of  its  power.  It  has  the  same 
right  to  interfere  to  protect  the  weak  and  poor, 
from  the  strong  and  rich,  in  the  department  of 
finance,  that  it  has  in  that  of  buying,  selling,  and 
transporting,  because  it  is  a  part  of  it.  The  prod- 
ucts of  this  country  and  of  the  world  are  as  much 
"  floated"  by  means  of  the  various  forms  of  trans- 
ferring the  titles  to  property  used  as  money,  as  by 
the  railway,  the  steamboat,  and  the  canal,  which 
transfer  property  itself.  Congressional  power  over 
the  forms  of  transferring  titles  to  property  (paper 
money)  is  found  in  the  clause  of  the  Constitution 
quoted  above.  By  all  rules  of  legal  interpretation 
it  is  prohibited  from  issuing  them  to  be  used  as 
money,  by  the  limitations  of  the  Constitution,  in  the 
words  "  to  coin  money,  regulate  the  value  thereof 
and  of  foreign  coin."  Congress  is  bound  to  exercise 
its  power  over  the  titles  to  properti/  transported, 
within  the  letter  of  the  Constitution,  with  the  same 
cautious  regard  to  private  rights  and  interests  that 
it  observes  in  dealing  with  the  question  affecting 
the  moving  of  property  itself.  All  that  Congress 
is  asked  to  do  by  the  people,  all  it  has  a  right  to 
do  under  the  Constitution,  is  to  stamp  gold  or  silver, 
which  is  property,  so  that  its  weight  and  fineness 
may  be  known  to  all  men,  and  to  make  such  rules 
as  will  protect  the  people  from  being  cheated  by  the 
forms  of  the  titles  to  property,  called  money,  which 
banks  or  individuals  use. 


BY   WHOM  MONEY  IS  MADE.  Q^ 

Congress  has  no  rightful  power  to  "  create  "  any 
form  of  paper  money.  The  letter  of  the  Constitu- 
tion reserves  to  the  people  in  their  private  or  vol- 
untary associate  capacity  this  whole  power  of  prac- 
tical money,  aside  from  the  specified  power  granted 
to  Congress,  in  the  letter  of  the  Constitution,  to 
mould  the  precious  metals  into  such  forms  as  seemed 
to  it  desirable,  and  to  stamp  their  weight  and  fine- 
ness upon  them  by  any  device  it  may  choose  to 
use. 

6 


CHAPTER  XV. 

IMPOTENCE  OF  STATUTE  LAW. 

Gold  ia  the  soul  of  the  financial  system  of  the 
world.  It  is  to  money  and  banking  what  light 
and  air  are  to  life.  In  all  the  vast  transactions  of 
commerce  it  is  the  wand  that  ever  reveals  to  all 
the  exact  obligations  of  one  man  to  another,  the 
world  over.  The  power  of  municipal  law  to  sepa- 
rate it  from  them,  or  in  any  respect  materially  to 
change  or  modify  its  relation  to  or  power  over 
them,  is  as  impossible  as  would  be  an  act  of  crea- 
tion. To  attempt  it  is  to  attempt  to  say  by  statute 
what  shall  be  the  thoughts  and  opinions  of  men, 
without  changing  any  of  the  conditions  that  sur- 
round them,  what  shall  be  their  motives  of  action, 
while  acknowledging  that  all  the  things  that  go  to 
make  up  inducements  to  act  are  beyond  control. 

How  very  small  is  the  influence  of  that  law 
which  is  enforced  in  courts  of  justice  as  compared 
with  the  habits  and  customs  of  daily  life.  The 
latter  are  more  powerful  than  formal  enactments, 
because  they  carry  in  themselves  the  means  of  their 
own  enforcement.  They  are  the  very  warp  and 
woof  of  our  existence.  Such  are  the  "  laws  of 
trade."     They  are  as  powerful  as  the  mills  of  Go^ 


IMPOTENCE   OF  STATUTE  LAW  67 

and  as  prompt  in  their  execution  as  the  ligMning's 
flash.  Such  is  the  power  of  gold  over  all  commer- 
cial transactions.  It  is  not  by  human  enactment. 
It  grows  out  of  the  absolute  necessity  of  having 
some  substance  that  in  itself  fully  meets  and  satis- 
fies the  idea  of  value,  implanted  by  God  in  the 
mind  of  man. 

It  is  as  impossible  to  conceive  of,  much  less  ex- 
press, a  definite  value,  without  something  in  the 
mind  that  embodies  and  unerringly  expresses  it,  as 
of  a  yard,  without  something  in  the  mind  of  a  defi- 
nite length ;  or  of  quantity  with  no  vessel  or  stand- 
ard in  mind  that  will  measure  quantity.  It  is  as 
preposterous  to  deny  the  absolute  power  of  gold  to 
measure  value,  because  value  is  a  thing  of  the 
mind,  or  attempt  to  control  it  by  statute  law,  as  it 
would  be  to  deny  the  existence  of  thought,  because 
we  cannot  weigh  thought  in  a  balance,  or  to  at- 
tempt to  govern  and  regulate  thought  by  act  of 
Congress. 

No  law  can  be  rightfully  enacted  which  pre- 
scribes that  any  "  money  symbol  "  shall  be  a  legal 
tender  for  all  debts.  Gold  is  not  made  a  legal  ten- 
der by  the  force  of  statute  law.  The  law  follows 
a  usage.  It  does  not  make  one.  All  commercial 
obligations  agreed  to  deliver  gold  before  statute 
law  began,  and  it  has  continued  in  accordance  with 
statute  law  and  in  spite  of  it  down  to  the  present 
time.  It  was  made  a  legal  tender  by  commercial 
usage,  and  no  government  has  the  power  perma- 
nently to  change  it.     The  forming  of  gold  into  coin 


68  MONEY,  TRADE,  AND  BANKING. 

and  declaring  it  a  legal  tender  is  the  putting  of  the 
usage  of  the  ages  into  a  convenient  and  legal  form, 
and  nothing  more.  The  purpose  and  power  of 
coinage  and  legal  tender  acts  are  to  prevent  misun- 
derstandings between  the  parties  to  contracts  as  to 
the  exact  weight  and  fineness  of  the  gold,  the  de- 
livery of  which  is  promised  in  contracts  and  the 
saving  of  words  in  writing  them. 

The  violation  of  the  letter  and  spirit  of  the  Con- 
otitution,  by  the  enactment  of  a  law  to  compel  all 
creditors  to  accept  government  promissory  demand 
notes  in  the  place  of  the  coin  they  were  entitled  to 
have  in  1862,  was  not  submitted  to  by  the  people 
because  it  was  legally  or  morally  right,  but  because 
of  the  resolve  of  every  loyal  man  that  no  act  of 
the  government,  honestly  done,  should  be  called  in 
question  in  the  face  of  a  great  national  peril.  But 
all  contracts  have  been  made  from  that  day  to  this 
with  reference  to  the  amount  of  gold  that  the  num- 
ber of  dollars  mentioned  in  them  would  net.  This 
is  clearly  shown  by  the  fact  that  all  articles  that 
have  a  sale  in  Europe  have  sold  here  for  the  num- 
ber of  dollars  that  would  net  the  same  amount  of 
^old  here  that  the  same  things  netted  here  when 
sold  in  Europe. 

Providing  by  law  that  a  man  shall  take  any 
"  money  symbol "  for  his  property,  already  sold  or 
to  be  sold,  is  attempting  to  compel  him  to  part 
with  property  which  has  intrinsic  value  for  some- 
thing which  commands  nothing  of  intrinsic  value 
anywhere  in  the  whole  line  of  exchanges.     This, 


IMPOTENCE   OF  STATUTE  LAW.  69 

in  the  nature  of  the  case,  cannot  be  clone  because  it 
is  contrary  to  fundamental  natural  rights. 

It  is  useless  to  waste  words  on  hare-brained 
theories.  We  must  assume  that  gold  has  in  itself 
intrinsic  value,  that  it  is  the  most  concentrated 
form  of  capital,  and  that  it  has  the  power  to  do 
what  it  has  done  since  the  world  began,  —  measure 
the  value  of  all  other  commodities  by  its  own  in- 
trinsic value,  as  we  are  obliged  to  assume  the  fact 
of  our  own  existence.  Why  or  how  it  has  this 
power  has  no  more  practical  import  in  discussing 
financial  questions,  than  how  food  nourishes  the 
body  has  in  the  discussion  of  practical  agriculture. 
It  is  certain  that  somewhere  in  the  system  of  ex- 
changing titles  to  property  all  values  must  be 
brought  to  a  uniform  and.  practical  test,  and  this  is 
only  possible  by  making  every  commercial  obliga- 
tion, the  world  over,  refer  to  and  promise  to  deliver 
the  same  thing. 

While  every  title  exchanged,  however  small  or 
however  large,  has  reference  to  the  delivery  of  a 
particular  thing,  or  a  promise  to  do  a  particular 
thing,  there  must  be  some  provision  made  for  the 
delivery  of  the  thing,  or  the  doing  of  the  thing 
promised.  Make  it  certain,  or  even  probable,  that 
the  thing  promised  will  not  be  delivered,  or  will 
not  or  cannot  be  done,  and  the  whole  edifice  of 
finance  will  immediately  come  down  with  a  crash. 
It  is  because  of  the  perfect  confidence  of  the  busi- 
ness world  that  the  gold  will  be  forthcoming  when 
called  for,  that  the  commercial  edifice  stands  firm. 


70  MONEY,  TRADE,  AND  BANKING. 

Gold  is  the  foundation ;  integrity,  ability,  fidelity, 
industiy,  and  promptness  are  the  superstructure. 
It  is  all  expressed  in  the  one  word  "  confidence,"  or 
in  the  sentence  "  confidence  in  our  business  asso- 
ciates." All  the  experience  of  the  past  and  the 
facts  of  the  present  testify  to  the  necessity  of  pay- 
ing gold  or  its  equivalent,  in  the  settlement  of 
every  commercial  obligation. 


CHAPTER  XVI. 

CONCLUSION. 

It  appears  then,  (1.)  that  moneys  are  titles  to 
property,  the  ownership  of  which  or  its  equivalent 
passes  with  these  moneys  and  is  always  in  the  per- 
son who  for  the  time  being  holds  them. 

(2.)  That  coin,  as  distinguished  from  gold  as 
property,  and  as  used  as  currency,  is  the  crudest 
and  most  inconvenient  form  of  money,  and  is  rarely 
used,  only  .81  of  one  per  cent,  of  debts  being  paid 
in  coin ;  and  that  nearly  all  of  that  small  sum 
passes  as  property,  rather  than  currency. 

(3.)  That  greenbacks  and  bank  bills  are  next  to 
the  lowest  form  of  the  money  of  commerce.  That 
they  are  only  used  for  the  smallest  and  simplest 
transactions,  only  4.6  per  cent,  of  debts  being  paid 
in  them. 

(4.)  That  the  great  bulk  of  all  payments,  95.13 
per  cent,  of  them,  is  made  in  checks,  drafts,  and 
other  forms  of  money  which  are  made  by  individ- 
uals, no  piece  of  which  continues  in  existence  for 
scarcely  more  than  a  day. 

(5.)  That  bank-notes  can  only  be  made  to  circu- 
late to  meet  a  specific  and  very  limited  demand  ; 
and  can  be  made  to  do  so  small  a  part  of  the  work 


72  MONEY,   TRADE,  AND  BANKING. 

of  practical  money,  that  the  only  needed  restric- 
tions upon  their  issue  are  the  ones  we  now  have ; 
which  simply  secures,  beyond  a  chance,  their 
prompt  payment  by  their  maker  on  demand. 

(6.)  That  no  money  is  possible  (excepting  its 
circulation  is  compelled  by  might  as  against  right) 
that  has  not  in  itself  intrinsic  value,  or  does  not 
represent  and  is  a  title  to  property  of  intrinsic 
value.  The  aggregate  of  all  paper  moneys  in  cir- 
culation are  titles  to  property  of  many  times  ita 
nominal  value.  (The  bank  capital.  United  States 
bonds,  signatures  and  indorsements  on  money,  tak- 
ing it  all  together,  actually  represent  and  make  lia- 
ble for  its  satisfaction  more  than  ten  dollars  in 
value  of  bond  fide  property,  for  every  dollar  of 
paper  money  in  circulation.) 

(7.)  That  all  capital  used  in  banking  is  tbe  ag- 
gregate of  the  capital  of  stockholders  and  depos- 
itors, and  that  banking  is  the  exchanging  of  the 
titles  to  this  property  for  titles  to  every  kind  of 
property  that  the  community  the  bank  serves  de- 
sires to  use,  which  are  again  exchangeable  for  oth- 
ers, and  so  on  indefinitely. 

(8.)  That  all  forms  of  obligations  used  as  money 
necessarily  contain  the  option  of  having  them  con- 
verted into  gold  on  demand,  but  that  they  are  not 
based  on  gold  exclusively,  or  to  any  large  percent- 
age. They  are  based  on  all  the  property,  to  which 
they  are  titles,  which  is  in  process  of  being  ex- 
changed. It  is  understood  to  be,  and  is,  the  op- 
posite  of  credit.     Money  is  passed  to  end  a  credit 


CONCLUSION.  73 

not  to  make  one.  A.  passes  money  to  B.,  because 
he  is  indebted  to  B.  The  obligation  of  A.  to  B. 
may  be  one  second  old  or  one  year.  A.  meeting  B. 
says,  "  Will  you  lend  me  $1,000  for  ten  days  ?  " 
"  Certainly,"  says  A.  That  instant  B.  has  a  credit 
with  A.  for  $1,000.  A.  ends  the  credit  by  hand- 
ing $1,000  to  B.  and  receives  for  it  a  title  to  the 
property  of  B.  maturing  at  the  expiration  of  the 
ten  days. 

(9.)  That  the  banking  business  is  never  done  on 
credit  as  distinguished  from  capital.  Credit,  as  that 
word  is  usually  understood,  forms  no  appreciable 
part  of  it.  Money  is  based  on  the  capital  in  proc- 
ess of  being  increased  in  volume  and  usefulness,  in 
the  factories  and  in  the  stoi-es  of  the  country  — 
capital  in  transit.  All  the  obligations  of  a  bank 
are  titles  to  actual  capital,  of  which  gold  is  a  very 
small  but  absolutely  necessary  part. 

What  safety  requires  its  proportion  to  the  bank 
deposits  to  be,  is  determined  by  circumstances,  and 
is  constantly  varying.  That  there  must  be  a  suffi- 
cient amount  in  any  country  to  make  it  certain 
that  the  final  balance  between  it  and  other  coun- 
tries,!  and  between  its  own  banks,  will  be  promptly 
paid  in  gold,  in  addition  to  the  amount  necessary 
to  supply  the  wants  of  the  financij^lly  timid  or  ig- 
norant, is  certain. 

1  The  "  final  balance  "  is  the  balaaoe  due  at  any  time,  from  one 
country  to  another,  after  they  have  for  the  time  exchanged  all 
those  things  wliich  they  then  dcairc  to  exchange  and  can  agree 
apon  the  terms  of  exchange. 


74  MONEY,    TRADE,   AND  BANKING. 

The  man  who  dares  trust  no  man  will  hoard  bis 
accumulations  in  gold.  The  man  who,  migrating, 
does  not  know  the  use  of  safer  and  better  ways,  will 
carry  bis  capital  in  gold,  and  so  on.  The  more  en- 
lightened a  people  and  the  more  complete  its  means 
of  exchanging  property  and  information,  the  less 
gold  is  required,  proportionately  and  absolutely, 
which  proportion  is  constantly  growing  less. 

As  there  is  no  essential  difference  between  bank 
promissory  demand  notes  and  any  other  form  of  de- 
mand against  the  property  of  a  bank,  there  is  no 
good  reason  for  making  any  distinction  between 
them  and  any  other  form  of  bank  liability,  in  re- 
stricting their  amounts  by  taxation  or  by  any  other 
disability. 

The  only  effect  of  any  such  regulations  must  be 
to  discriminate  unjustly  against  that  class  in  the 
community  whose  convenience  compels  them  to 
use  bank-notes.  The  liability  of  a  bank  is  not 
increased  one  dollar  by  having  it  expressed  by 
outstanding  bank-bills  rather  than  by  its  outstand- 
ing book  accounts,  checks,  drafts,  or  liabilities  of 
any  other  kind.  Again,  excepting  at  the  season  of 
the  handling  of  the  crop,  the  demand  for  bank-bills 
is  very  uniform,  and  any  accumulation  of  them  in 
any  depository  out  of  the  reach  of  the  people  can- 
not fail  to  work  hardship. 

It  is  immaterial  whether  this  hoarding  is  done  for 

a  good  or  a  bad  purpose,  by  an  individual  or  by  the 

reasurer  of  the  United  States  ;  the  effect  upon  the 

labor  of  the  country  is  the  same.     It  is  clear  that 


CONCLUSION.  75 

the  interest  of  all  is  best  served  by  the  immediate 
deposit  in  banks  of  the  capital  any  one  has,  not 
needed  by  him  for  immediate  use,  which  bank-bills 
stand  for  and  are  titles  to.  All  admit  that  if  at 
any  time  all  persons  withheld,  or  attempted  to 
withhold,  such  deposits,  commercial  ruin  would  im- 
mediately sweep  over  the  country. 

So  far  as  its  monetary  transactions  are  concerned, 
the  United  States  government  is  a  huge  business 
corporation.  The  same  hardship  is  caused  to  the 
laboring  men  of  the  country  by  any  disturbance  of 
business  caused  by  its  action  in  violation  of  the  in- 
exorable laws  of  trade  and  finance,  -as  would  be 
caused  by  a  private  corporation  or  individual, — 
doing  business  of  the  same  magnitude,  —  doing  the 
same  thing.  That  widespread  ruin  has  not  hereto- 
fore been  caused  by  the  operations  of  the  United 
States  sub-treasury,  and  by  the  issuing  of  legal 
tender  notes  by  the  government,  proves  the  ex- 
traviigant  and  wasteful  methods  of  this  country,  to 
which  the  government  is  no  exception,  rather  than 
the  exemption  of  "  the  great  American  nation  " 
from  those  maxims  and  laws  that  inexorably  hold 
all  other  peoples. 

Poisons  may  be  taken  and  death  not  immediately 
follow,  and  even  permanent  injury  may  not  always 
be  done.  Hundreds  of  men  survive  wounds  that  usu- 
allv  cause  death.  Reckless  and  unsound  business 
methods,  under  exceptional  circumstances,  some- 
times succeed  for  brief  periods,  where  obedience  to 
Bound  maxims  and  recognized  laws  fails;  but  a  true 


76  MONEY,   TRADE,  AND  BANKING. 

and  enduring  prosperity  is  only  secured  to  a  nation 
or  individual  by  a  strict  compliance  with  those  laws 
which  are  approved  by  all  human  experience.  They 
are  such  not  by  man's  creation.  They  are  a  part 
of  nature,  discovered,  not  made,  and  can  no  more 
be  continuously  defied  or  ignored  than  the  law  of 
gravitation. 

Scarcely  any  two  things  can  be  conceived  of  that 
are  alike  in  appearance,  that  are  more  opposite  in 
character  or  in  their  effect  on  the  business  of  a 
country  than  the  promissory  demand  notes  of  a 
bank  (bank-bills)  and  government  legal  tender 
notes.  Every  bank-bill  paid  out  by  a  bank  is  a 
title  to  the  permanent  property  of  the  bank,  in 
exchange  for  which  the  bank  receives  from  the  in- 
dividual to  whom  it  hands  the  bill,  property,  or 
a  title  to  property,  of  a  like  amount.  The  property 
to  which  the  titles  have  been  thus  exchanged  is  "  in 
transit"  quick  capital,  sure  to  be  realized  on  at  a 
time  certain,  and  is  set  apart  by  the  borrower  to 
pay  the  loan  of  the  bank. 

A  legal  tender  promissory  demand  note  is  a  title 
to  nothing.  It  has  no  permanent  property  set  apart 
to  pay  it.  It  is  always  issued  for  property  con- 
sumed or  for  property  put  into  public  buildings, 
river  and  harbor  improvements,  etc.,  etc.,  so  that 
it  cannot  possibly  be  used  to  satisfy  the  obligation 
assumed  when  the  legal  tender  representing  it  was 
issued.  The  legal  tender  has  no  duplicate  title  to 
quick  property,  or  to  anything  else.  It  is  a  forced 
loan,  to  the  injury  of  both  parties  to  it.    In  its  very 


CONCLUSION.  77 

best  aspect,  it  is  only  a  promise  to  exercise  the 
sovereign  power  of  taxation  at  some  future  time, 
the  exercise  of  which  must  inevitably  disturb  all 
the  business  adjustments  of  the  country  to  just  the 
extent  it  is  exercised. 

In  the  return  to  the  bank  of  the  capital  the  in- 
dividual borrowed  of  it  (represented  by  the  bank- 
note he  received  from  the  bank),  he  surrenders  to 
the  bank  the  equivalent  of  that  capital,  either  in 
titles  to  the  property  of  the  bank  (bank-notes)  or 
their  equivalent.  To  the  government,  for  its  issue 
of  promissory  demand  notes,  nothing  is  promised  or 
due. 

In  the  case  of  the  government,  if  it  proposes  to 
redeem  promptly  its  promissoi*y  notes  (legal  ten- 
ders) it  is  obliged  to  keep  sufficient  capital  to  do  so 
constantly  on  hand  unemployed,  to  the  great  loss  of 
the  government  (the  people),  —  see  the  millions 
now  idle  in  the  United  States  treasury,  —  while 
the  banks  are  loaning  and  deriving  an  income  from 
their  capital  which  their  promissory  notes  (bank- 
bills)  represent. 

By  the  working  of  the  known  laws  of  banking 
the}'  have  a  certainty  that  their  capital  will  return 
to  them,  and  be  available  (deposits)  to  meet  their 
promissory  notes  (bank-bills)  when  they  are  pre- 
sented for  redemption.  Again,  the  borrowing  of 
the  capital  of  the  bank  (bank-bills)  is  the  securing 
the  titles  to  bond  fide  capital  of  intrinsic  value  for  a 
limited  time,  and  at  a  sacrifice  by  the  borrower  of 
a  portion  of  the  profit  secured  by  him  by  his  use  of 


78  MONEY,   TRADE,   AND  BANKING. 

this  capital,  in  the  form  of  a  fixed  rental  for  its  use 
(interest).  This  rental  operates  as  a  limitation,  to 
the  actual  necessities  of  the  community,  of  the 
volume  of  bank-bills  issued.  It  also  operates  as 
a  constant  pressure  on  the  whole  volume  of  bank- 
bills  in  circulation,  to  compel  the  return  to  and  de- 
struction by  the  banks  of  any  surplus  that  may 
have  been  issued  over  the  necessities  of  the  people. 
This  withdrawal  of  bank  circulation  does  not  de- 
pend on  the  will  of  the  bank,  but  on  the  legitimate 
needs  of  borrowers. 

Upon  the  legal  tender  promissory  notes  issued  by 
the  government  every  influence  is  the  exact  op- 
posite of  that  on  the  promissory  notes  issued  by 
the  banks.  There  is  no  pressure  upon  the  whole 
volume  of  government  legal  tender  promissory  notes 
to  cause  any  portion  of  them  to  return  to  their 
source.  Every  consideration  which  seemed  to 
justify  their  original  issue  inevitably  operates,  and 
with  redoubled  force,  to  prevent  their  return  and  to 
compel  and  justify  a  still  further  issue.  Bank 
promissory  notes  are  issued  to  meet  the  necessities 
of  those  receiving  and  using  them  and  for  a  valua- 
ble and  permanent  consideration,  representing  prop- 
erty in  transit,  and  are  under  the  control  of  the  cer- 
tain and  well-known  laws  of  finance. 

Government  legal  tender  notes  are  issued  to  meet 
the  necessities  of  the  party  making  them,  and  for 
the  exact  opposite  of  a  permanent  consideration, 
and  represent  consumed  property  and  in  violation 
of  all  safe  financial  maxims.    The  existence  of  lega. 


CONCLUSION.  79 

tender  notes  issued  by  any  governments  shows  as 
reckless  a  disregard  of  well-understood  financial 
law  as  a  plague  does  of  healthful  sanitary  condi- 
tions. Any  redundance  of  legal  tender  notes  must 
be  absorbed  by  inflating  prices,  to  the  great  injury 
of  the  wage-workers,  for  their  volume  is  necessarily 
inflexible ;  while  under  our  system  there  can  be  no 
redundance  of  national  bank  bills,  exchangeable 
for  gold  on  demand,  because  any  surplus  is  retired 
by  being  paid  into  the  bank  in  order  to  stop  the 
rental  on  the  capital  they  are  titles  to.  This  proc- 
ess is  constantly  going  on.  The  struggle  by  one 
set  of  persons  and  influences  to  increase,  and  by 
another  set  to  diminish,  the  volume  of  bank-bills  in 
circulation,  is  as  intense  as  self-interest  can  make 
it,  the  result  being  to  make  the  supply  exactly 
equal  to  the  legitimate  demand. 

There  is  scarcely  an  existing  government  that 
has  not  tried  the  experiment  of  issuing  legal  tender 
notes,  and  there  is  not  a  single  instance  of  its  fail- 
ing to  inflate  prices,  bringing  uncertainty  of  em- 
ployment and  positive  sufl[ering  to  the  wage-workers, 
and  only  profiting,  and  that  for  a  brief  period,  the 
reckless  and  unscrupulous  speculators  who  are 
found  in  every  department  of  business.  On  the 
other  hand,  there  is  no  instance  where  the  promis- 
sory demand  notes  (bank-bills)  issued  by  banks, 
redeemable  in  coin,  ever  affected  unfavorably  any 
community  that  used  them.  Kept  within  their 
natural  limit,  injury  from  their  issue  is  impossible, 
for  there  is  a  dollar's  worth  of  property  of  intrinsic 


60  MONEY,   TRADE,  AND  BANKING. 

value  especially  pledged  to  meet  instantly  every 
one  of  them  on  demand.  If  the  conditions  of  issue 
were  the  same  as  of  government  legal  tender  notes, 
the  effect  of  their  issue  would  be  the  same ;  but  the 
conditions  of  their  issue  being  the  exact  opposite, 
their  effect  is  the  exact  opposite. 

Let  the  government  withdraw  all  the  legal  tender 
notes  ;  they  can  work  no  good,  and  are  a  source 
of  great  danger  ;  and  the  people  themselves  will 
supply  all  the  circulating  notes  they  can  advantage- 
ously use,  that  are  at  all  times  interchangeable  for 
gold.  The  issuing  of  currency  by  the  government 
to  the  amount  of  any  fraction  of  that  permanently 
absorbed  by  the  people,  takes  from  the  elasticity  of 
the  whole  volume  by  just  so  much.  In  its  least  ob- 
jectionable feature  it  is  as  effective  and  objection- 
able as  it  would  be  for  a  manufacturer  to  fill  up  his 
reservoir  with  stones,  above  its  lowest  outlet,  to 
make  the  water  run  over  the  flash-boards,  to  supply 
his  mill-pond  below,  when  by  simply  raising  the 
artificial  obstruction,  the  gate,  the  water  would 
flow  of  its  own  accord  ;  or  for  him  to  put  into  his 
factory  a  steam-engine,  to  get  more  power  where 
the  heat  and  steam  would  be  of  no  possible  advan- 
tage to  him,  and  where  it  was  liable  to  do  him  very 
serious  damage,  when  he  could  get  the  added  power 
•  vith  perfect  safety  and  at  no  expense  by  the  action 
of  the  law  of  gravitation,  by  simply  hoisting  the 
water-gate  of  his  mill-pond  a  little  higher. 

The  only  possible  office  of  the  government  note 
b  the  doing  abnormally  and  at  great  risk,  a  part  oi 


CONCLUSION.  81 

the  work  that  the  bank-note  would  naturally,  safely, 
and  better  do.  Besides  its  other  vices,  it  has  the 
vice  of  being  an  obstacle  between  the  people  and 
the  gold  they  are  entitled  to  "  on  demand."  Now 
their  demand  for  gold  at  the  counter  of  a  bank  is 
answered  by  handing  to  them  a  greenback,  and  the 
gold  for  the  paper  handed  them  can  only  be  legally 
demanded  at  a  sub-treasury,  perhaps  a  thousand 
miles  away. 

The  one  obstacle  that  stands  in  the  way  of  a 
prompt  withdrawal  of  all  forms  of  government  de- 
mand notes  is  the  United  States  Sub-Treasury  Act. 
Repeal  that  act  and  the  path  is  clear  to  the  entire 
withdrawal  of  the  government  from  all  interference 
with  the  finances  of  the  country,  excepting  the  Ex- 
ercise of  its  police  power,  the  exercise  of  which,  and 
only  which,  it  has  any  warrant  for  in  the  Constitu- 
tion. 

Whatever  may  have  been  the  condition  of  the 
banks  of  the  country  which  seemed  to  justify  the 
establishment  of  the  sub-treasury,  it  is  to-day  the 
greatest  curse  that  afflicts  the  finances  of  the  coun- 
try. It  not  only  places  duties,  powers,  and  oppor-- 
tunities  in  the  hands  of  the  United  States  treas- 
urer, such  as  no  human  being  should  ever  be  in- 
trusted with,  but  it  compels  him  to  do  what  is  made 
;*  misdemeanor,  visited  with  severe  penalties  when 
done  by  a  bank,  and  would  not  be  submitted  to  for 
a  day  if  done  by  an  individual :  namely,  it  locks  up 
the  money  of  the  people.  The  making  of  any  loan 
upon  the  security  of  United  States  or  national  bank 

6 


82  MONEY,   TRADE,  AND  BANKING. 

notes,  or  agreeing  for  a  consideration  to  withhold 
the  same  from  use  ;  in  other  words,  the  "  locking 
up  "  of  money,  is  made  a  misdemeanor,  and  the 
bank  committing  the  offence  is  punishable  by  a  fine 
of  $1,000,  and  a  further  sum  of  one  third  of  the 
money  so  loaned.  The  officers  of  the  bank  making 
the  loan  are  also  subject  to  a  penalty  equal  to  one 
quarter  of  the  money  loaned. 

This  provision  of  law  is  not  applied  to  individ- 
uals, because  locking  up  money  is  an  offence  they 
do  not  commit  without  the  assistance  of  banks. 
These  severe  penalties  were  provided  because  the 
locking  up  of  money  was  an  injury  to  the  public ; 
and  furthermore,  the  injury  is  in  exact  proportion 
to  the  amount  of  money  locked  up,  and  is  not  made 
any  greater  or  less  by  the  "  locking  up  "  being  done 
by  a  bank,  an  individual,  or  by  the  United  States 
treasurer. 

Yet  in  the  face  of  the  enactment  of  a  law  by  the 
United  States  government  severely  punishing  a 
bank  for  withholding  currency  from  circulation,  it 
maintains  the  sub-treasury  in  violation  of  every 
sound  maxim  of  finance,  in  violation  of  the  laws 
governing  the  banks,  and  in  the  face  of  the  damage 
to  the  industries  of  the  country  admitted  to  be 
done  by  it,  every  day  of  its  existence,  now  neces- 
sarily inflating,  and  now  necessarily  curtailing  the 
volume  of  the  circulating  medium,  by  the  accumula- 
tion in,  or  the  disbursements  from,  the  treasury. 

The  absurdity,  to  call  it  nothing  worse,  of  a  gov- 
ernment needlessly  keeping  the  people  in  a  chronic 


CONCLUSION.  83 

state  of  suspense  and  anxiety  as  to  what  the  gov- 
ernment treasurer  will  do,  by  compelling  him  by 
law  to  lock  up  from  the  use  of  the  people  the 
means  necessary  to  the  steady  and  safe  conduct  of 
the  daily  business  of  the  country,  or  of  putting  the 
power  to  do  so  in  the  hands  of  any  one  of  its  citizens, 
with  the  certainty  (in  the  light  of  the  peculations 
heretofore  practised  by  high  government  and  pri- 
vate officials)  that  some  one  of  them,  by  using  his 
information  and  power,  will  sooner  or  later  put 
millions  in  his  pocket,  cannot  be  matched  by  the 
financial  action  of  any  nation  having  a  sound  credit 
now  in  existence. 

There  is  not  a  solid  reason  to  justify  the  continu- 
ance of  the  sub-treasury  for  a  day.  Ample  security 
can  be  furnished  by  the  deposit  of  government  or 
other  solid  bonds,  by  any  one  of  a  hundred  banks, 
for  every  dollar  the  United  States  treasurer  need 
deposit  in  them,  and  at  any  one  of  the  points  where 
it  is  desiiable  to  keep  the  deposit.  The  people 
would  then  have  the  use  of  the  capital  accumulated 
by  the  United  States  government,  in  anticipation  of 
its  wants,  in  the  form  of  "  deposits  in  bank  "  to  the 
credit  of  the  United  States  government,  as  it  now 
has  the  capital  that  every  private  citizen  or  corpora- 
tion now  has  in  advance  of  needs. 

In  the  domain  of  finance  the  whole  people  acting 
as  one,  the  United  States  government,  is  the  peer 
of  tlie  luimblest  man  who  counts  one  in  the  great 
whole.  It  can  avail  itself  of  no  power  in  the  uni- 
verse to   raise   itself   above  the  level    upon  which 


84  MONEY,   TRADE,  AND  BANKING. 

each  individual  member  of  it  stands.  It  can  no 
more  permanently  control  or  modify  the  laws  of 
6nance,  in  its  own  behalf,  than  it  can  the  law  of 
gi^avitation. 

The  United  States  government,  in  all  that  per- 
tains to  finance,  is  a  huge  business  establishment, 
and  nothing  more.  The  following  table,  compiled 
from  the  reports  of  the  comptroller  and  United 
States  treasurer,  shows  to  what  extent  the  opera- 
tions of  the  United  States  treasurer,  by  locking  up 
currency  in  the  sub-treasury,  needlessly  disturbs 
the  finances  of  the  country.  It  further  shows  how 
needless  is  the  further  existence  of  the  government 
legal  tender  notes,  either  to  the  government  as  a 
business  corporation  or  to  the  volume  of  circulating 
notes.  The  vicious  sub-treasury  system,  and  gov- 
ernment legal  tender  note  system,  complement  and 
support  each  other,  to  the  good  of  none  and  the  in- 
jury of  all. 

That  ample  security  in  government  or  other 
bonds  approved  by  the  United  States  treasurer 
would  be  gladly  furnished  by  banks  situated  at 
convenient  points,  for  all  the  money  the  govern- 
ment would  have  to  deposit,  no  one  doubts.  If  this 
is  true,  there  is  no  good  reason  for  maintaining  the 
sub-treasury.  On  the  30th  day  of  September,  1879, 
if  the  United  States  treasurer  had  deposited  in  the 
banks  all  the  funds  in  his  hands  and  had  called  in 
and  destroyed  every  legal  tender  note,  the  money 
in  actual  use  by  the  people  would  have  been  re- 
duced by  only  one  million  four  hundred  thousand 
dollars. 


CONCLUSION. 


85 


DIFFERENT  FORMS  OF    MONEY  (IN  MILLIONS)   IN  THE  UNITED 
STATES   TREASURY. 


IN  UNITED   STATES  TREASURT. 

Sept.  30 
1876. 

Sept.  30 
1877. 

Sept.  30 
1878. 

Sept.  30 
1879. 

Sept.  30 
1880 

Gold 

Silver       

Legal  Tender    .... 
Bank-notes       .... 

«55.4 
6. 

73.2 
15.2 

«149.8 

$107. 
7.4 
82.8 
14.1 

$136. 
27.9 
73. 
9.3 

$169.8 
53. 
48.8 
4.5 

$135.6 

78.7 

27.9 

3.5 

Total          .... 

$211.3 

S246.2 

$276.1 

$245.7 

IN  NATIONAL  BANKS. 

Gold 

Silver 

I-cgal  Tender    .... 
Bank-notes       .... 

$18.9 

2.5 
84.2. 
16.9 

$19. 
3.7 
66.9 
16.6 

$24.7 
6.3 
64.4 
16.9 

$37.2 
6. 

69.2 
16.7 

$102.8 
6.5 
56.6 
18.2 

Total          .... 

«121.6 

$105.2 

$111.3 

$128.1 

$184.1 

IN  CIRCULATION. 

eold 

Silver 

«gal  Tender    .... 
bank-notes      .... 

«74.8 

21.6 

208.6 

290.1 

$66.7 
39. 
200.2 
287. 

$86.7 

47.1 

2(9.2 

294.9 

$98.7 
63.4 
22«.7 
314. 

$127. 
67.1 
262.1 
322.1 

Total          .... 

$595. 

$592.9 

$637.9 

$704.8 

$778.8 

r>egal  Tender  in  Circulation    . 
Money  in  Trea-sury  other  than 
Legal  Tender 

$208.6 
76.6 

$200.2 
128.5 

$209.2 
173.2 

$228.7 
227.8 

$262.1 
217.8 

Legal  Tender  In  Circulation  in 
excess  of  Money  In  Treas- 
ury. 

$132. 

•717 

$86. 

$1.4 

$44.8 

86  MONEY,   TRADE,  AND  BANKING. 

Whatever  the  necessities  of  the  government  were 
that  were  thought  to  justify  the  original  issue  of 
legal  tender  notes,  it  is  now  impossible  for  it  to 
derive  any  advantage  from  continuing  them,  even  if 
there  were  no  objections  to  their  use. 

Taxation,  as  now  exercised,  draws  from  the 
banks  more  than  the  equivalent  of  the  interest  on 
every  government  bond  pledged  to  secure  the  de- 
mand notes  of  the  bank  now  in  circulation. 

It  should  be  the  aim  of  the  government  to  so 
levy  taxes  as  to  increase  the  rate  of  interest  as  little 
as  possible,  as  increasing  the  rate  of  interest  most 
quickly  checks  production.  Still  there  is  no  valid 
reason  why  the  banks  should  not  pay  taxes  to  the 
equivalent  of  the  especial  advantages  they  derive 
from  their  connection  with  the  government ;  or 
why  capital,  in  the  form  of  deposits  in  banks, 
should  not  be  taxed  so  long  as  anything  is  taxed, 
other  than  property  having  intrinsic  value ;  but  the 
absurdity  of  laying  any  portion  of  the  taxes  on  the 
promissory  demand  notes  of  the  banks  is  unequalled. 
They  are  a  part  of  the  bills  payable  of  the  banks 
and  that  only.  They  are  the  checks,  drafts,  bills  of 
exchange,  etc.,  of  the  common  people,  and  must  not 
be  taxed  while  the  same  thing  used  by  another 
class  are  not  taxed. 

It  is  immaterial  whether  the  obligations  of  a 
bank  are  in  the  form  of  outstanding  "  promissory 
demand  notes  "  (money),  or  on  deposit  accounts, 
drafts,  checks,  etc.,  etc.  The  total  indebtedness  of 
a  bank,  and  the  certainty  of  its  prompt  payment  on 


CONCLUSION.  87 

demand,  is  the  only  thing  its  officers  or  the  public 
regavcl  in  adjusting  the  amount  and  character  of  its 
reserve. 

The  importing  or  exporting  of  gold,  or  the  main- 
taining of  specie  payments  by  the  banks,  is  affected 
less  by  their  circulating  demand  notes  than  by  any 
other  form  of  bank  obligation,  because  they  are  so 
much  less  in  volume  ;  and  further,  they  are  so  nec- 
essary to  the  common  transactions  of  every-day  life 
that  to  collect  and  present  them  for  payment  in 
a  sufficient  amount  to  reduce  permanently  their 
volume,  is  impracticable. 

Banks  ought  never  to  be  short  of  currency.  It 
is  as  unnecessary,  under  proper  forms  of  taxation, 
as  to  be  short  of  blank  checks,  drafts,  etc.  Have 
enough  for  the  maximum  needs,  adjust  the  whole 
volume  of  taxation  so  as  to  produce  the  just  amount 
of  revenue  from  the  banks,  leaving  bank-bills  free 
from  taxation,  and  you  accomplish  that  end. 

To  place  the  financial  system  of  the  country  as 
far  as  practicable  beyond  the  possibility  of  dis- 
turbance by  the  action  of  any  one  man,  be  he  pub- 
lic officer  or  private  citizen,  and  to  make  it  as  se- 
cure as  possible,  we  need  : 

(1.)  To  abolish  the  whole  sub-treasury  sy-stem 
and  require  that  all  moneys  received  by  the  govern- 
ment shall  be  immediately  deposited,  at  convenient 
points,  in  national  banks.  All  banks  at  designated 
points  should  have  the  right  to  bid  freely  and  pub- 
licly for  the  privilege  of  acting  as  depositories  of 
public  funds,  and  should  furnish  ample  securities  in 


88  MONEY,   TRADE,  AND  BANKING. 

government  or  other  solid  bonds  for  all  deposits 
made  in  them  by  the  government. 

(2.)  To  redeem  and  cancel  every  dollar  of  gov- 
ei'nment  demand  promissory  notes. 

(3.)  To  require  the  United  States  treasurer  to 
act  as  custodian,  free  of  expense  to  the  banks,  of  all 
gold  offered  to  him  for  safe-keeping  by  any  bank, 
and  to  issue  gold  certificates  therefor  of  any  de- 
nomination desired  in  sums  the  multiple  of  five. 

(4.)  All  reserves  of  banks  to  be  in  gold,  gold 
certificates,  or  in  bank  balances,  etc.,  as  now.  The 
banks  to  be  prohibited  from  receiving  on  special  de- 
posit coin  or  bullion,  and  the  prohibition  of  any 
loan  on  United  States  or  national  bank  notes  as  se- 
curity to  be  extended  to  coin  and  bullion. 

(5.)  Gold,  or  government  gold  certificates,  to  be 
legal  tender  for  all  debts,  public  and  private. 

(6.)  The  banks  to  pay  taxes  predicated  upon 
their  having  each  day  a  gold  reserve  to  an  amount 
equal  to  a  certain  percentage  of  their  total  deposits 
for  the  day. 

(7.)  As  the  gold  in  any  bank  rises  above  the 
prescribed  amount,  its  taxes  shall  proportionately 
decrease,  until  the  amount  of  gold  the  bank  holds 
shall  reach  an  amount  equal  to  a  specified  percent- 
age of  their  total  deposits,  above  which  percentage 
the  bank  shall  reap  no  advantage  in  taxation  by 
accumulating  gold.^ 

1  There  is  ample  gold  in  the  world  for  all  its  legitimate  uses  in 
commerce,  provided  it  h  free,  within  reasonable  restrictions,  to  seek 
its  trade  level.    Next  to  so  arranging  onr  finaucial  system  aa  t« 


CONCLUSION.  89 

(8.)  As  the  gold  in  any  bank  decreases  below 
the  required  amount,  its  taxes  shall  proportionately 
increase. 

(9.)  When  any  bank  fails  to  redeem  on  demand 
its  promissory  demand  notes  in  gold,  from  that  day 
its  taxes  should  be  increased  to  a  penalty  tax, 
■which  shall  continue  so  long  as  the  suspension  of 
gold  payments  continues,  or  until  a  receiver  is  ap- 
pointed.^ 

(10.)  Each  bank  to  select  a  bank  at  any  one  of 
several  designated  points,  with  the  approval  of  the 
comptroller  of  the  currency,  at  which  it  shall  re- 
deem its  promissory  demand  notes,  which  redemp- 
tion banks  shall  send  to  the  New  York  redemption 
bank  any  bills  received  of  banks  outside  of  its  cir- 
cuit, to  be  thence  sent  to  their  proper  cii'cuit. 

(11.)  Mutilated  bills  to  be  sent  to  the  United 
States  treasury,  for  duplicates  or  for  final  redemp- 
tion. 

As  all  commercial  transactions  refer  to  and  are 
measured  by  gold,  it  is  necessary  that  a  certain 
definite  and  unvarying  part  of  them  be  actually 
made  in  gold,  lest  by  long  periods  of  non-use  its 
power  be  underrated  from  its  being  obscured.  The 
laws  of  mind  are  such  that  we  cannot  trust  our- 

fail  to  secure  our  fair  share,  is  the  arranging  it  so  as  to  accumulate 
here  an  undue  proportion.  Hence  tlio  advantage  to  tlio  banks  of 
reduced  taxation  should  stop  when  it  has  accumulated  a  reasonable 
amount. 

1  A  bank  should  not  bo  allowed  to  profit  by  failing  to  meet  ita 
obligations,  and  as  the  injury  is  done  to  the  public,  no  exception 
can  justly  be  taken  by  the  bank  to  such  a  provision  of  law. 


90  MONEY,   TRADE,  AND  BANKING. 

selves  to  estimate  justly  things  long  out  of  practical 
use  and  long  out  of  mind.  We  cannot  keep  in 
health  the  financial  tissues  without  the  reasonable 
and  constantly  visible  use  of  gold.  It  becomes 
more  necessary  to  secure  an  arbitrary  use  that  its 
place  and  power  may  be  always  recognized,  as  finan- 
cial operations  become  more  refined.  Therefore 
the  duties  on  imports  should  be  invariably  paid  in 
gold  or  gold  certificates. 

Again,  the  accumulations  of  the  whole  body  of 
the  people  should  of  right  be  in  that  form  of  prop- 
erty in  which  their  obligations  are  discharged.  If 
the  gold  is  not  collected  and  deposited  in  bank 
by  the  government,  the  people  will  soon  fail  to  see 
the  moral  right  of  the  government  to  demand  gold 
of  the  banks  to  pay  the  interest  on  its  bonds.  But 
the  master  consideration  for  adhering  to  the  policy 
of  requiring  all  duties  on  imports,  not  only  in  form 
but  in  substance,  to  be  actually  paid  either  in  gold 
or  gold  certificates,  is  because  it  is  the  only  safety 
of  the  country  in  times  of  panics  or  long-continued 
commercial  disaster.  Without  this  most  wise  pro- 
vision in  our  revenue  laws  it  is  impossible  to  have 
them  operate  justly  in  abnormal  conditions. 
.  Continuing  our  present  policy  of  collecting  all 
revenue  on  imports  in  gold,  with  the  power  in  the 
hands  of  the  United  States  treasurer  to  sell  the 
bonds  he  holds  as  security  for  deposit,  when  gold  is 
refused  by  the  bank  in  answer  to  his  demand,  and 
his  position  is  as  secure  with  no  sub-treasury  as 
now. 


CONCLUSION.  91 

The  only  remaining  question  that  my  limits  will 
permit  any  observations  upon,  is  that  of  the  recur- 
rence of  financial  panics,  —  disturbances  of  the 
financial  system  so  great  as  to  cause  the  suspension 
of  specie  payment  by  the  banks,  etc.  Will  th(f 
adoption  of  the  suggestions  herein  made  be  a 
remedy  in  the  future  for  all  panics  such  as  have 
been  experienced  in  the  past  ?  Yes  I  without  the 
shadow  of  a  doubt,  —  when  hurricanes  cease  ;  when 
earthquakes  are  unknown ;  when  railway  and  steam- 
boat accidents  are  things  of  the  past;  when  acci- 
dents never  come  to  the  prudent ;  when  the  unex- 
pected never  happens ;  when  the  operations  of  the 
known  laws  of  the  universe  cease  to  be  disturbed 
and  apparently  frustrated  by  the  operations  of  the 
unknown. 

All  human  conduct  is  based  on  the  doctrine  of 
chances.  Do  all  that  prudence  dictates  in  the  light 
of  past  experience,  and  rest  it  there,  is  the  law  in 
all  the  concerns  of  life.  Progress  is  only  consistent 
with  holding  in  our  conduct  a  just  equilibrium  be- 
tween risk  and  security.  But  this  fact  does  not 
justify  or  excuse  any  departure  from  well-settled 
principles  or  practices  by  an  individual  or  govern- 
ment. 


APPENDIX. 


SUSniARY  OF  THE    PRINCIPAL    RESTRICTIONS    AND   RE. 
QUIREMENTS  OF  THE  NATIONAL  BANK  ACT. 

Bt  John  Jay  Knox,  Comptkoller  of  the  Currency. 

(1.)  The  corporate  powers  possessed  by  the  national  bank- 
ing associations,  and  which  they  cannot  exceed,  are  liinitud 
by  the  organic  act  whicli  governs  them,  and  are  very  carefully 
enumerated  therein.     They  are  briefly  as  follows  :  — 

First.     To  adopt  and  use  a  corporate  seal. 

Second.  To  have  succession  for  twenty  years,  unless  sooner 
voluntarily  dissolved,  or  their  franchise  becomes  forfeited  by 
some  violation  of  law. 

Third.     To  make  contracts. 

Fourth.     To  sue  and  be  sued,  as  fully  as  natural  persons. 

Fifth.  To  elect  or  appoint  directors,  and  by  the  directors 
to  appoint  a  president,  cashier,  and  other  officers,  and  define 
their  duties. 

Sixth.  To  adopt  all  necessary  by-laws,  not  inconsistent 
with  law. 

Seventh.  To  exercise  by  their  boards  of  directors,  or  officers, 
subject  to  law,  sucn  incidental  powers  as  are  necessary  to  carry 
on  the  business  of  banking  ;  by  discounting  and  negotiating 
promissory  notes  and  other  evidences  of  debt ;  by  receiving 
deposits;  by  buying  and  selling  exchange,  coin,  and  bullion 
by  loaning  money  on  personal  security;  and  by  obtaining  ani 
issuing  circulating  notes. 

These  are  the  entire  powers  possessed  by  the  national 
banks,  and  it  has  l)ecn  judicially  held  that  all  powers  not  here 
enumerated  are  withheld.  These  enumerated  powers,  there- 
fore, operate  also  as  restrictions  upon  the  baaks. 


94  APPENDIX. 

(2.)  One  of  the  provisions  appeai-ing  in  the  above  grant  of 
powers  is  tliat  the  national  banks  may  loan  money  upon  per- 
sonal security  only  —  that  is,  real  estate  may  not  be  taken  by 
them  directly  or  indirectly,  as  original  security  for  any  loan; 
the  effect  of  which  is  to  make  them  commercial  institutions, 
and  to  discourage  the  loaning  of  money  upon  securities  not 
readily  convertible. 

(3.)  Mortgages  on  real  estate  may  be  taken,  or  real  estate 
be  conveyed  to  them,  by  way  of  security  for,  or  in  satisfaction 
of,  debts  previously  contracted  in  good  faith;  or  they  may  pur- 
chase the  same  at  sales  under  judgments,  decrees,  or  mort- 
gages held  by  them.  But  all  possession  by  them  of  such  real 
estate,  whether  under  mortgage,  by  purchase,  or  otherwise,  i 
limited  to  five  years. 

(4.)  They  are  required  to  have  a  paid-up  capital  of  not  less 
than  $100,000  each,  and  in  cities  of  50,000  inhabitants  their 
capital  must  be  not  less  than  $200,000  each.  In  the  discretion 
of  the  secretary  of  the  treasury,  however,  banks  with  not 
less  than  $50,000  capital  may  be  organized  in  places  hav- 
ing less  than  6,000  inhabitants.  The  design  and  effect  of 
these  provisions  is  to  prevent,  as  far  as  possible,  the  establish- 
ment of  feeble  organizations,  unequal  to  the  wants  of  the  com- 
munities in  which  they  are  located. 

(5.)  At  least  one  half  of  the  authorized  capital  must  be 
paid  in  before  commencing  business,  and  the  remaining  por- 
tion must  be  paid  in  at  the  rate  of  not  less  than  one  fifth 
monthly  from  the  time  the  association  is  authorized  to  com- 
mence business.  Proper  provision  is  made  for  enforcing  pay- 
ment of  installments  of  capital  stock  subscribed,  or  for  making 
good  any  impairment  of  capital  which  may  occur  in  the  course 
of  business. 

(6.)  The  comptroller  is  also  authorized  and  required,  be- 
fore issuing  his  certificate  of  authority  to  any  association  to 
commence  business,  to  ascertain  if  such  association  has  in 
good  faith  complied  with  all  the  requirements  of  law  prelim- 
inary to  its  organization,  and  he  may  appoint  a  special  com- 
mission for  this  purpose  if  thought  necessary.     He  must  also 


APPENDIX.  95 

obtain  a  sworn  statement  of  the  president  and  cashier  and  of 
a  majority  of  the  directors  of  the  proposed  association,  setting 
forth  all  the  facts  i)ropeiIy  bearing  on  this  inciuiry. 

(7.)  No  increase  or  reduction  of  the  authorized  capital  of 
an  association  can  be  made  without  the  approval  of  the  comp- 
troller being  first  obtained,  and  no  increase  is  valid  until  the 
■whole  amount  is  actually  paid  in  and  certified  to  under  oath. 

(8.)  Every  director  must  be  a  citizen  of  the  United  States, 
and  three  fourths  of  the  directors  of  any  association  must  be 
residents  of  the  state,  territory,  or  district  in  which  it  ia 
located.  Each  director  must  also,  during  his  whole  continu- 
ance in  office,  be  the  bond  fide  owner  of  not  less  than  ten 
shares  of  the  capital  stock  of  the  association  of  which  he  is  a 
director,  which  shares  must  not  be  hypothecated  or  in  any 
way  pledged  as  security  for  any  loan  or  debt.  To  all  of  which 
he  must  make  oath. 

(9.)  Every  director  must  also,  immediately  upon  his  elec- 
tion or  appointment,  make  and  transmit  to  the  comptroller  an 
oath  that  he  will  faithfully  administer  the  affairs  of  his  asso- 
ciation, and  will  not  knowingly  violate,  or  permit  to  be  violated, 
any  of  the  provisions  of  the  National  Bank  Act. 

(10.)  The  shareholders  of  every  national  bank  are  each 
made  individually  responsible,  equally  and  ratably,  and  not 
one  for  another,  for  all  contracts,  debts,  and  engagements  of 
Buch  association,  to  the  extent  of  their  stock  therein,  at  its 
par  value,  in  addition  to  the  amount  invested  in  such  shares  ; 
thus  giving  a  double  security  to  the  general  creditors  of  these 
associations. 

(11.)  Each  national  bank,  before  it  is  authorized  to  com- 
mence business,  must  have  first  deposited  with  the  treasurer 
of  the  United  States  an  amount  of  interest-bearing,  registered 
United  States  bonds,  not  less  in  any  case  than  $30,000,  nor 
less  than  one  third  of  the  paid-in  capital  of  the  bank,  except 
that,  by  a  late  act,  the  maximum  deposit  of  bonds  required 
for  any  bank  is  $50,000.  These  bonds  are  primarily  held  as 
security  for  the  redem[)tion  of  the  circulating  notes  of  the 
bank;  but  as  the  amount  of  circulation  issued  equals  ninetj 


96  APPENDIX. 

per  cent,  only  of  the  par  value  of  the  bonds  deposited,  any- 
excess  in  the  value  of  the  bonds  above  the  amount  of  ciroula-. 
tion  to  be  redeemed  becomes  an  added  security,  in  the  posses- 
sion of  the  government,  applicable  to  the  payment  of  claims  of 
the  general  creditors  of  the  association  depositing  them,  should 
it  become  insolvent. 

(12.)  National  banks  are  forbidden  to  make  transfers  or  as- 
signments of  any  of  their  assets  or  credits  after  an  act  of  in- 
solvency, or  in  contemplation  thereof,  with  a  view  to  the  pref- 
erence of  one  creditor  to  another;  and  any  transfer  or  assign- 
ment so  made  is  null  and  void. 

(13.)  Every  association  in  the  national  system  is  required 
to  receive  at  par,  for  any  debt  or  liability  to  it,  the  circulating 
notes  of  any  and  all  other  banks  in  the  system,  and  these 
notes  are  also  receivable  by  the  government  for  all  taxes  or 
other  dues,  except  duties  on  imports,  and  are  payable  for  all 
debts  or  demands  owing  by  the  government,  except  interest 
on  the  public  debt.  These  features  give  to  the  notes  an  ad- 
ditional value  beyond  that  which  they  possess  through  a  de- 
posit of  United  States  bonds. 

(14.)  One  of  the  most  invaluable  features  of  the  national 
banking  system  is  that  requiring  each  association  to  have  at 
all  times  on  hand  an  available  cash  reserve  of  specified  pro- 
portions as  compared  with  its  deposits  and  circulation.  The 
proportion  required  for  banks  located  in  the  financial  centres 
of  the  country  is  twenty-five  per  cent,  of  their  deposits.  For 
all  other  banks  the  required  proportion  is  fifteen  per  cent,  of 
their  deposits.  The  proportion  of  reserve  to  circulation  is  the 
same  for  all  banks,  namely,  five  per  cent.,  which  amount  is  to 
be  at  all  times  on  deposit  with  the  treasurer  of  the  United 
States,  to  be  held  and  used  by  him  in  the  redemption  of  their 
notes.  This  sum  is  also  permitted  to  be  counted  as  part  of 
the  required  reserve  on  deposits.  Most  stringent  means  are 
placed  at  the  disposal  of  the  comptroller  for  enforcing  com- 
pliance by  the  banks  with  the  requirements  of  the  law  relat- 
ing to  the  maintenance  of  a  cash  reserve. 

(15.)  Equal  in  importance  with  the  requirements  as  to  a 


APPENDIX.  97 

cash  reserve  are  the  provisions  which  compel  the  accumu- 
lation by  each  national  bank  of  a  surplus  fund,  to  be  set 
apart  by  it  from  time  to  time  out  of  the  profits  of  its  business, 
and  which  fund  may  not  be  used  by  the  bank  for  any  purpose 
other  than  to  meet  and  charge  off  losses  in  excess  of  its  cur- 
rent earnings.  These  provisions  require  that  each  association 
shall,  before  making  any  dividend,  carry  to  its  surplus  fund 
one  tenth  part  of  its  net  profits  since  its  last  preceding  divi- 
dend, until  the  same  shall  amount  to  twenty  per  cent,  of  its 
capital  stock.  It  is  further  provided,  that  no  dividend  shall 
ever  be  declared  by  any  association  to  an  amount  greater  than 
its  undivided  profits  (not  surplus)  then  on  hand,  deducting 
therefrom  its  losses  and  bad  debts,  and  that  if  such  losses 
shall  equal  or  exceed  its  profits  on  hand  other  than  surplus,  no 
dividend  shall  be  made.  Careful  provision  is  thus  made  for 
the  steady  growth  of  the  surplus  fund  of  each  national  bank, 
until  its  sum  shall  equal  one  fifth  of  the  capital  of  the  associa- 
tion, thereby  establishing  a  reserve  fund  against  which  it  may 
charire  any  excess  of  losses  over  and  above  its  other  profits  on 
hand,  and  thus  preserve  its  capital  stock  unimpaired.  Under 
these  provisions  the  amount  of  surplus  accumulated  by  all  the 
banks  now  in  operation  is  $116,897,800,  against  an  aggregate 
capital  of  $466,147,436. 

(16.)  Another  very  important  feature  of  the  law  is  the  re- 
quirement that  detailed  statements  of  the  condition  of  each 
national  bank,  verified  by  the  oath  of  its  president  or  cashier, 
and  attested  by  not  less  than  three  of  its  directors,  shall,  not 
less  than  five  times  in  each  year,  be  made  to  the  comptroller, 
and  also  be  published  in  the  city  or  town  where  the  bank  is 
established;  and  to  guard  against  the  possibility  of  any  bank 
fortifying  itself,  in  advance  of  a  known  day  for  making  a  re- 
port, so  as  to  make  a  good  showing  on  that  particular  day,  it 
is  further  provided  that  each  report  shall  bo  for  some  past  day, 
to  be  specified  by  the  comptroller.  This  office,  also,  under 
the  law,  makes  annually  a  report  to  Congress,  containing  a 
great  number  and  variety  of  statistical  tables  compiled  from 
the  various  reports  of  the  banks,  through  the  wide  distributioa 
7 


98  APPENDIX. 

of  which  full  information  concerning  the  banks  and  the  work- 
ing of  the  system  is  annually  placed  before  the  public. 

(17.)  The  national  banks  are  also  required  to  make  semi- 
annual reports  to  the  comptroller  of  their  dividends  declared, 
and  the  amount  of  their  profits  in  excess  of  such  dividends, 
■which  returns  are  also  tabulated  by  him,  and  the  results  pre- 
sented to  Congress  and  the  country  in  his  annual  reports. 
Full  means  are  provided  for  enforcing  compliance  by  the 
banks  with  the  provisions  of  law  concerning  both  classes  of 
reports  here  named,  by  authorizing  a  severe  penalty  for  any 
failure  or  neglect  to  make  and  transmit  the  same. 

(18.)  In  addition  to  the  means  for  acquiring  a  knowledge 
of  the  condition  of  the  banks  furnished  by  the  reports  already 
mentioned,  the  law  provides  for  their  examination  periodically 
by  disinterested  persons  to  be  appointed  by  the  comptroller. 
These  persons  visit  the  banks,  inspect  their  books  of  account, 
securities,  and  assets  and  liabilities  generally,  have  power  to 
examine  their  officers  and  directors  under  oath,  and  inquire 
into  all  matters  necessary  to  a  full  understanding  of  their 
actual,  existing  condition,  and  then  make  immediate  and  full 
report  in  writing  of  the  results  of  such  examination.  This 
feature  of  the  law  is  an  invaluable  one,  operating  not  only  as 
a  restraint  against  irregular  practises  by  any  banks  so  dis- 
posed, but  as  a  means  of  detecting  them  and  preventing  their 
recurrence.  These  examinations  may  be  as  frequent  as  is 
thought  necessary,  and  their  expense  is  borne  by  the  banks 
themselves. 

(19.)  All  necessary  publicity  as  to  the  ownership  of  shares 
in  any  national  banking  association  is  secured  by  a  provision 
requiring  that  a  list  of  the  names  and  residences  of  all  its 
shareholders,  and  the  number  of  shares  held  by  each,  shall  be 
kept  in  the  office  where  its  business  is  transacted,  and  shall, 
during  business  hours,  be  subject  to  the  inspection  of  any 
shareholder  or  creditor  of  the  association,  and  of  the  officers 
authorized  to  assess  taxes  under  state  authority.  A  copy  of 
such  list,  verified  by  oath,  must  also  be  transmitted  to  the 
comptroller  annually. 


APPENDIX.  99 

(20.)  The  national  banks  serve  a  very  useful  purpose,  both 
to  the  government  and  the  public,  more  especially  in  localities 
where  there  is  not  a  sub-treasury,  by  acting,  when  so  au- 
thorized by  the  secretary  of  the  treasury,  as  depositories  of 
public  moneys  and  financial  agents  of  the  United  States.  For 
their  services  in  this  regard  they  receive  no  direct  compensa- 
tion, and  are,  moreover,  required  to  give  satisfactory  security 
for  the  faithful  performance  of  their  duties  and  the  safe  cus- 
tody and  prompt  payment  of  all  public  moneys  intrusted  to 
them,  by  a  deposit  with  the  treasurer  of  a  sufficient  amount 
of  United  States  bonds. 

(21.)  The  national  banks  are  prohibited  from  loaning  to 
any  person,  company,  corporation,  or  firm,  an  amount  exceed- 
ing one  tenth  part  of  their  capital,  and  in  estimating  the 
liabilities  of  a  company  or  firm  the  liabilities  of  its  several 
members  are  to  be  included.  They  are  thus,  by  law,  made 
conservative  in  their  management,  and  restrained  from  grant- 
ing excessive  loans,  which  would  at  least  lessen  their  general 
usefulness  to  the  communities  in  which  they  are  situated  and 
perhaps  impair  their  safety. 

(22.)  They  are  further  prohibited  from  making  any  loan  or 
viiscount  whatever  on  the  security  of  the  shares  of  their  own 
capital  stock,  or  from  purchasing  or  holding  the  same  unless 
to  prevent  loss  upon  a  debt  previously  contracted  in  good 
faith.  And,  even  in  the  latter  case,  they  are  not  permitted 
permanently  to  hold  or  to  cancel  shares  so  obtained,  but  must, 
•within  six  months  from  the  date  of  their  acquirement,  sell  or 
dispose  of  them  at  public  or  private  sale. 

(23.)  Tliey  arc  also  prohibited  from  becoming  indebted  or 
in  any  wny  liaMe  to  an  amount  exceeding  that  of  their  capital 
stock  actually  (laid  in,  except  on  account  (1)  of  their  circulat- 
ing notes;  (2)  their  deposits  or  collections ;  (3)  bills  of  ex- 
change or  drafts  drawn  against  money  actually  on  deposit  to 
their  credit  or  due  to  them;  and  (4)  liabilities  to  their  own 
stockholders  for  reserved  profits.  The  purpose  and  effect  of 
these  provisions  are  to  make  the  national  banks  lenders  and 
Bot  borrowerB  of  money. 


100  APPENDIX. 

(24.)  They  are  further  forbidden,  either  directly  or  indi- 
rectly, to  pledge  or  hypothecate  any  of  their  circulating  notes 
for  the  purpose  of  procuring  money  with  which  to  pay  in  or 
increase  their  capital  stock,  or  for  use  in  their  banking  opera- 
tions, or  otherwise.  This  restriction  effectually  precludes  the 
practice,  which  was  common  in  some  former  state  systems,  of 
employing  the  circulating  notes  of  an  association  in  the  in- 
crease of  its  own  capital,  or  in  furnishing  capital  for  a  new 
association,  which  practice  has  at  times  been  carried  to  an 
extreme  limit. 

(25.)  The  national  banks  are  restricted  in  the  rate  of  in 
terest  which  they  may  take,  receive,  or  reserve,  to  the  rate 
allowed  by  the  laws  of  the  State,  Territory,  or  District  in 
which  they  are  located. 

(26.)  A  system  of  redemption  of  the  circulating  notes  of  the 
national  banks  is  provided,  whereby  not  only  may  they  be 
readily  converted  into  lawful  money,  but  the  mass  of  the  cir- 
culation may  be  kept  clean  through  the  retirement  of  such 
portion  as  becomes  worn  or  mutilated,  and  the  issue  of  new 
notes  by  the  comptroller,  in  their  stead.  This  redemption  is 
accomplished  and  compelled  by  requiring,  first,  that  each 
national  bank  shall  redeem  its  circulating  notes  at  its  own 
i-ounter,  at  par,  in  lawful  money  on  demand;  second,  that  the 
notes  of  all  closed  banks  shall  be  redeemed  by  the  treasurer, 
third,  that  all  worn,  mutilated,  or  defaced  national  bank  notes, 
which  are  received  by  any  assistant  treasurer  or  designated 
depository  of  the  United  States,  shall  be  forwarded  to  the 
treasury  for  redemption;  and,  fourth,  by  providing  that  when 
the  notes  of  any  associations,  assorted  or  unassorted,  are  pre* 
Bented  in  sums  of  $1,000,  or  any  multiple  thereof,  to  the 
treasurer  they  shall  be  redeemed  by  that  ofBcer.  The  gov- 
ernment is  indemnified  for  all  redemptions  made  by  it,  eithei 
by  the  bonds  which  it  holds,  as  in  the  case  of  insolvent  banks, 
or  by  a  deposit  of  lawful  money  which  is  required  to  be  pre- 
viously made  by  all  other  banks. 

(27.)  If  a  national  bank  fails  to  pay  its  circulating  notes, 
the  comptroller  is  authorized  to  sell  its  bonds  and  provide  for 


APPENDIX.  101 

kheir  payment.  The  government  is  indemnified  against  any 
possible  loss  from  its  guaranty  of  tlie  payment  of  such  cir- 
culating notes,  by  having  reserved  to  it  by  law  a  paramount 
lien  upon  all  the  assets  of  any  association  which  defaults  in  the 
redemption  of  its  notes,  to  make  good  any  deficiency  arising 
from  the  sale  of  its  bonds. 

(28.)  The  destruction  of  all  mutilated  notes  and  of  notes  of 
closed  banks,  redeemed  by  the  treasurer,  is  regulated  by  in- 
structions of  the  secretary,  given  in  pursuance  of  law.  All 
notes  destroyed  are  previously  counted  by  separate  agents  or 
representatives  of  the  secretary,  the  treasurer,  the  comptroller 
of  the  cun-ency,  and  the  banks  which  issued  the  notes;  they 
are  effectually  mutilated  by  clipping  and  punching,  to  prevent 
their  possible  circulation  should  they  by  any  remote  chance 
pass  out  of  the  possession  of  the  treasury  before  destruction ; 
they  are,  in  the  presence  of  each  of  the  agents  mentioned, 
placed  in  a  triple-locked  macerating  machine,  where  they  are 
immediately  ground  into  pulp;  and  their  destruction  is  certified 
to  by  all  the  agents,  both  upon  proper  books  in  the  treasury 
department  and  in  certificates  sent  to  the  banks  of  issue. 

(29.)  The  banks  arc  prohibited,  under  a  severe  penalty, 
from  certifying  any  check  drawn  upon  them,  unless  the  person 
or  company  drawing  the  check  has  at  the  time  on  deposit  with 
them  an  amount  of  money  equal  to  that  specified  in  the 
check. 

(30.)  They  arc  also  prohibited  from  making  any  loan  on 
the  security  of  United  States  or  national  bank  notes,  or  from 
atn-eeing  for  a  consideration  to  withhold  the  same  from  use, 
the  purpose  of  the  prohibition  being  to  prevent  the  "  locking 
up  "  of  money  by  the  national  banks,  in  the  interests  of  spec- 
ulators. 

(31.)  The  officers  of  national  banks  are  requried  to  make 
leturns  under  oath  to  the  treasurer  of  the  United  States  and 
to  pay  to  him  in  semi-annual  installments  an  annual  duty  of 
»nc  per  cent,  upon  the  average  amount  of  their  circulating 
notes,  one  half  of  one  per  cent,  upon  the  average  amount  of 
Iheir  deposits,  and  a  like  rate  upon  the  average  amount  of 


102  APPENDIX. 

their  capital  stock  beyond  the  amount  invested  in  United 
States  bonds.  This  duty  is  in  lieu  of  all  other  government 
taxes. 

(32.)  The  payment  to  the  United  States  of  the  duties 
named  does  not,  however,  relieve  the  national  banks  from  any 
liability  to  taxation  by  other  than  government  authority,  as  it 
is  expressly  provided  that  nothing  in  the  act  shall  prevent  the 
shares  of  these  associations  from  being  taxed  by  the  States  as 
is  other  similar  property,  or  shall  exempt  their  real  property 
from  state,  county,  or  municipal  taxation,  to  the  same  extent 
as  other  real  property. 

(33.)  Should  the  capital  stock  of  any  association  become 
impaired  in  the  course  of  business,  by  losses  or  otherwise,  it 
must,  within  three  months  after  the  association  shall  have  re- 
ceived notice  from  the  comptroller,  be  made  good  by  assess- 
ment upon  the  shareholders  pro  rata  for  the  amount  of  stock 
held  by  them ;  and  during  such  impairment  the  treasurer  is 
required,  upon  notification  from  the  comptroller,  to  withhold 
the  interest  on  all  bonds  held  by  him  in  trust  for  such  associa- 
tion. The  authorized  capital  of  the  banks  is  thus  by  law 
compelled  to  be  kept  always  intact,  for  the  protection  of  their 
creditors. 

(34.)  When  a  national  bank  goes  into  voluntary  liquidation, 
it  must,  within  six  months  thereafter,  deposit  in  the  treasury 
an  amount  of  lawful  money  equal  to  its  entire  outstanding  cir- 
culation, which  circulation  is  thereafter  redeemed  by  the 
treasurer.  Thus  the  banks,  under  existing  law,  derive  no 
benefit  from  the  accidental  loss  or  destruction  of  any  portion 
of  their  notes,  such  benefit  inuring  solely  to  the  government. 

(35.)  Should  any  bank  become  insolvent,  the  most  ample 
powers  are  possessed  by  the  comptroller  to  take  possession  of 
such  association,  through  a  receiver  to  be  appointed  by  him, 
and  to  proceed  to  collect  its  assets,  and  pay  off,  by  dividends 
from  time  to  time,  the  claims  of  its  creditors.  The  note-hold- 
ers are  in  such  cases  as  secure  as  though  the  bank  had  re- 
mained solvent,  the  notes  being  protected  by  the  bonds  held 
by  the  government;  while  the  other  creditors  have  as  a  pro« 


APPENDIX.  103 

tection,  in  addition  to  the  assets  of  the  bank,  the  individual 
liability  of  the  shareholders  before  mentioned,  together  with 
the  capital  paid  in,  no  part  of  which  can  be  returned  to  the 
shareholders  until  all  approved  claims  against  the  association 
shall  have  been  paid. 

(36.)  Mention  has  several  times  been  made  herein  of  the 
ample  means  provided  in  the  National  Bank  Act  for  enforcing 
compliance  with  its  provisions,  by  the  infliction  of  penalties 
for  their  violation  or  non-observance.  All  of  these  penalties 
are  severe,  and  many  of  them  summary,  the  principal  ones 
being  here  enumerated  :  — 

I.  For  charging  or  exacting  a  usurious  rate  of  interest,  the 
whole  interest  agreed  to  be  paid  is  forfeited;  or,  if  actually 
paid,  twice  its  amount  may  be  recovered  back  by  the  person 
paying  the  same. 

II.  For  certifying  any  check,  unless  the  person  by  whom 
the  check  is  drawn  has  on  deposit  with  the  association  an 
amount  of  money  equal  to  that  represented  by  the  check,  the 
bank  may  be  immediately  closed  by  the  appointment  of  a  re- 
ceiver. 

III.  For  every  day,  after  five  days,  in  which  a  national 
bank  shall  fail  to  make  and  transmit  to  the  comptroller  any 
report  of  its  condition  called  for  by  him,  and  for  similar  de- 
lay in  transmitting  to  him  the  required  proof  of  publication  of 
such  report,  and  also  for  every  day,  after  ten  days,  in  which 
a  bank  shall  fail  to  transmit  its  semi-annual  report  of  divi- 
dends and  earnings,  a  penalty  of  one  hundred  dollars  is  im- 
posed. And  if  any  association  fails  or  refuses  to  pay  the 
amount  of  such  penalty  when  assessed  and  demanded,  the 
Treasurer  of  the  United  States  is  authorized  to  retain  it,  upon 
the  order  of  the  comptroller,  out  of  the  interest,  as  it  may 
become  due  to  the  association,  upon  the  bonds  deposited  to 
secure  its  circulation. 

IV.  For  failure  of  the  president  or  cashier  of  any  associa- 
tion to  report  to  the  treasurer  semi-annually,  for  purposes  of 
taxation,  the  average  amount  of  its  notes  in  circulation,  de« 


104  APPENDIX. 

posits,  and  capital  stock  not  invested  in  United  States  bonds, 
a  penalty  of  two  hundred  dollars  is  imposed,  which  may  be 
collected  as  in  the  preceding  paragraph.  The  treasurer  may 
also,  in  such  cases,  assess  the  association  upon  the  highest 
amount  of  its  circulation,  deposits,  and  capital  stock,  to  be 
ascertained  in  such  manner  as  he  may  deem  best. 

V.  If  an  association  fails  to  pay  the  duties  assessed  upon  its 
circulation,  deposits,  and  capital,  such  duties  also  may  be  re- 
served by  the  treasurer  out  of  the  interest  falling  due  upon 
its  bonds. 

VI.  The  making  of  any  loan  upon  the  security  of  United 
States  or  national-bank  notes,  or  agreeing  for  a  consideration 
to  withhold  the  same  from  use  —  in  other  words,  the  "locking 
up  "  of  money,  —  is  made  a  misdemeanor,  punishable  by  a  fine 
of  one  thousand  dollars,  and  a  further  sum  of  one  third  of  the 
money  so  loaned;  and  the  officers  making  the  loan  ar(3  subject 
to  the  further  penalty  of  one  quarter  of  the  money  loaned. 

VII.  Embezzlement  of  the  funds  of  an  association  by  any  of 
its  officers,  directors,  or  agents,  or  any  false  entry  by  any  of 
them,  in  any  book,  statement,  or  report,  with  intent  to  injure 
or  defraud  the  association  or  any  other  company  or  person,  is 
punishable  by  imprisonment  of  not  less  than  five  nor  more 
than  ten  years. 

VIII.  If  any  officer  or  agent  of  an  association,  whose  charter 
has  expired,  knowingly  reissues  or  puts  into  circulation  any 
note,  draft,  check,  or  other  security  of  such  association,  he  is 
punishable  by  a  fine  of  $10,000,  or  by  imprisonment  of  from 
one  to  five  years,  or  by  both  such  fine  and  imprisonment. 

IX.  If  the  capital  stock  of  any  national  bank  falls  below 
the  minimum  amount  required  by  law,  through  the  failure  of 
any  shareholder  to  pay  the  whole  or  any  part  of  the  amount 
of  his  subscription  for  such  stock,  and  the  deficiency  in  capi- 
tal shall  not  be  made  good  within  thirty  days  thereafter,  a  re- 
■ieiver  may  be  appointed  to  close  up  the  affairs  of  the  associa- 
tion. 

X.  Whenever  the  lawful  money  reserve  of  a  national  bank 
falls  below  the  limit  required  by  law,  and  remains  below  such 


APPENDIX.  105 

limit  for  thirty  days  after  receiving  notice  from  tlie  comp- 
troller to  make  its  reserve  good,  a  receiver  may  be  appointed 
and  the  bank  closed. 

XL  A  receiver  may  also  be  appointed  for  any  association 
■which  faUs  to  redeem  its  circulating  notes  at  its  own  counter 
or  at  the  treasury,  at  par,  on  demand. 

XII.  If  an  association  which  accepts  any  shares  of  its  own 
capital  slock  in  order  to  prevent  a  loss  upon  a  debt  previously 
contracted  in  good  faith  (which  is  the  only  way  in  which  such 
stock  can  be  legally  acquired  by  it),  shall  fail  to  sell  such 
stock,  at  public  or  private  sale,  within  six  months  thereafter, 
it  may  be  closed  by  the  appointment  of  a  receiver. 

XIII.  Whenever  an  association  fails  to  pay  up  its  capital 
stock  as  required  by  law,  or  an  impairment  of  its  capital  oc- 
curs by  losses  or  otherwise,  and  it  shall  not,  within  three 
months  after  receiving  notice  from  the  comptroller,  make 
good  the  deficiency  by  an  assessment  upon  its  shareholders,  it 
may,  unless  it  consents  to  go  into  liquidation,  be  placed  in 
possession  of  a  receiver  and  its  business  closed. 

(37.)  Finally,  if  the  directors  of  any  national  banking  as- 
sociation knowingly  violate,  or  knowingly  permit  any  of  its 
officers,  agents,  or  servants  to  violate  any  of  the  provisions  of 
the  National  Bank  Act,  all  the  rights,  privileges,  and  fran- 
chises of  the  association  become  thereby  forfeited ;  in  addition 
to  which,  every  director  who  participates  in  or  assents  to  such 
violation  is  held  personally  and  individually  responsible  for  all 
damages  sustained  by  any  person  in  consequence  thereof. 


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